Hizon Notes - Special Commercial Laws

NOTES ON SPECIAL COMMERCIAL LAWS Kenneth and King C. Hizon (3A)_____________________________________________________________________________________________________________

UNIVERSITY OF SANTO TOMAS Faculty of Civil Law A.Y. 2012-2013 First Semester

SPECIAL COMMERCIAL LAWS

LETTERS OF CREDIT Definition Q: What are letters of credit? A: Any arrangement however named of described, whereby a bank acting upon the request of its client or in its own behalf, agrees to pay another, against a stipulated documents provided that the terms of the credit are complied with. Q: What is the duration of LC? A: 1. 2.

Upon the period fixed by the pa rties; or If none is fixed: a. 6 months from its date if used in the Philippines; b. 12 months if used abroad

Governing law Q: What laws govern commercial transactions? A: In the absence of any particular provision in the Code of Commerce, commercial transaction shall be governed by usage and customs genereally observed. Letter of credit as an independent contract Q: Is a letter of credit an accessory contract? A: Letters of credit are in effect an absolute undertaking to pay the money advanced or the amount for which credit is given on the faith of the instrument. They are primary obligations and not accessory contracts. NOTE: A letter of credit by itself does not come into operation without a contract supporting it. It is not a contract that can stand on its own, it needs a supporting contract. In a commercial letter of credit it is a sale; in standby letter of credit, it is a non-sale transaction. Q: Describe the liability of the bank which issued the letter of credit.

A: It is neither a surety nor a guarantor. The liability of the issuing bank is primary and solidary. It is also not entitled to the benefit of excussion. Q: What is the purpose of the letters of credit? A: To ensure certainty of payment. The seller is assured of payment because the bank intervenes and makes the commitment to pay. This addresses problems arising from the seller’s refusal to part with his goods before being paid and the buyer’s refusal to part with his money before acquiring the goods, thus, facilitating commercial transactions. NOTE: The issuing bank should pay the beneficiary upon the latter’s submission of the stipulated documents and compliance with the terms of the credit even though there is a pending issue on whether or not the main contract underlying the letter of credit has been paid or fulfilled or not. Q: What are the 2 kinds of letters of credit? A: COMMERCIAL Involves contracts of sale Payable only upon presentation by the sellerbeneficiary of documents that show he has performed his contract

STANDBY Involves non-sale transactions Payable upon certification by the beneficiary of the applicant’s non-performance non -performance of the agreement.

Q: What are the other kinds of letters of credit? A: 1.

2.

– A letter of credit Irrevocable letter of credit – wherein the terms and the undertakings of the issuing bank cannot be amended or altered or revoked without the consent of the beneficiary – can be amended, Revocable letter of credit – altered or revoked even without the consent of the beneficiary

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3. 4.

Confirmed letter of credit - the liability of the confirming bank is primary Non-confirmed letter of credit

reimburse the issuing bank any and all amount should be paid under the letter of credit once the issuing bank is compelled to pay because the beneficiary is able to submit the document stipulated.

Irrevocable letter of credit Q: Is irrevocable letter of credit and confirmed letter of credit synonymous? A: An irrevocable letter of credit is not synonymous with a confirmed letter of credit. In an irrevocable letter of credit, the issuing bank may not, without the consent of the beneficiary and the applicant, revoke its undertaking under the letter, whereas, in a confirmed letter of credit, the correspondent bank gives an absolute assurance to the beneficiary beneficiary that it will undertake the issuing bank’s obligation as its own according to the terms and condition of the credit. IRREVOCABLE LETTER OF CREDIT The issuing bank may not, without the consent of the beneficiary and the applicant, revoke its undertaking under the letter

CONFIRMED LETTER OF CREDIT The correspondent bank gives an absolute assurance to the beneficiary that it will undertake the issuing bank’s obligation as its own according to the terms and conditions of the credit

Q: Can the irrevocable nature of letter of credit be changed? A: The terms of an irrevocable letter of credit cannot be changed without the consent of the parties, particularly the (Philippine Virginia Tobacco beneficiary thereof Administration v. De Los Angeles, Angeles, 164 SCRA 543, 1988) . Q: Can a court order the release to the applicant the proceeds of an irrevocable letter of credit without the consent of the beneficiary?

He agrees to pay the bank that issued the letter of credit. The applicant has no obligation to reimburse the issuing bank if the latter pays without the stipulated amounts duly paid under the letter of credit.

Q: Who is the beneficiary? A: The one entitled to payment from the issuing bank upon his submission of the document stipulated and compliance with the terms of the credit. Q: What is the effect of the failure of the beneficiary to fulfill his obligation under the main contract? c ontract? A: It does not negate his right to payment from the issuing bank as long as he is able to submit the required documents and comply with the terms of the credit, without prejudice to his liability against the account party under the law on contract and damages Q: Who is the issuing bank? A: The one that undertakes to pay the beneficiary upon submission of the beneficiary of these stipulated documents and compliance with the terms of the credit. Q: Enumerate the other parties. A: Advising or Notifying bank

A: No, such order violates the irrevocable nature of the letter of credit. The terms of an irrevocable letter of credit cannot be changed without the consent of the parties, particularly the beneficiary thereof. Parties to a letter of credit Q: Who are the parties to the letter of credit? A: 1. 2. 3.

Applicant Beneficiary Issuing bank

Paying bank

Confirming bank

Q: Who is the applicant? A: He may be a buyer, importer or obligor. The person who procures the opening of letter of credit and who agrees to

Negotiating bank

Not liable to pay the beneficiary; it does not have any contractual relations with the beneficiary. Its only obligation is to determine the apparent authenticity of the letter of credit; to check if at first glance that the same is genuine or valid: a. If valid, the advising/notifying bank notifies the beneficiary of the letter of credit; transmit the letter of credit in favor of the beneficiary so that the beneficiary can cause shipment of the equipment An agent of the issuing bank for the purpose of making payment to the beneficiary. He can also be the advising bank It lends credence to a letter of credit issued by a lesser known bank as if it is the one who issued the letter of credit. Its obligation is similar to an issuing bank. Thus, beneficiary may tender documents to the confirming bank and collect payment The bank in the city of the beneficiary which buys or discounts the drafts contemplated by the LC, if such draft is to be drawn on the opening bank not in the city of the beneficiary 26 UNIVERSITY OF SANTO TOMAS


3. 4.

Confirmed letter of credit - the liability of the confirming bank is primary Non-confirmed letter of credit

reimburse the issuing bank any and all amount should be paid under the letter of credit once the issuing bank is compelled to pay because the beneficiary is able to submit the document stipulated.

Irrevocable letter of credit Q: Is irrevocable letter of credit and confirmed letter of credit synonymous? A: An irrevocable letter of credit is not synonymous with a confirmed letter of credit. In an irrevocable letter of credit, the issuing bank may not, without the consent of the beneficiary and the applicant, revoke its undertaking under the letter, whereas, in a confirmed letter of credit, the correspondent bank gives an absolute assurance to the beneficiary beneficiary that it will undertake the issuing bank’s obligation as its own according to the terms and condition of the credit. IRREVOCABLE LETTER OF CREDIT The issuing bank may not, without the consent of the beneficiary and the applicant, revoke its undertaking under the letter

CONFIRMED LETTER OF CREDIT The correspondent bank gives an absolute assurance to the beneficiary that it will undertake the issuing bank’s obligation as its own according to the terms and conditions of the credit

Q: Can the irrevocable nature of letter of credit be changed? A: The terms of an irrevocable letter of credit cannot be changed without the consent of the parties, particularly the (Philippine Virginia Tobacco beneficiary thereof Administration v. De Los Angeles, Angeles, 164 SCRA 543, 1988) . Q: Can a court order the release to the applicant the proceeds of an irrevocable letter of credit without the consent of the beneficiary?

He agrees to pay the bank that issued the letter of credit. The applicant has no obligation to reimburse the issuing bank if the latter pays without the stipulated amounts duly paid under the letter of credit.

Q: Who is the beneficiary? A: The one entitled to payment from the issuing bank upon his submission of the document stipulated and compliance with the terms of the credit. Q: What is the effect of the failure of the beneficiary to fulfill his obligation under the main contract? c ontract? A: It does not negate his right to payment from the issuing bank as long as he is able to submit the required documents and comply with the terms of the credit, without prejudice to his liability against the account party under the law on contract and damages Q: Who is the issuing bank? A: The one that undertakes to pay the beneficiary upon submission of the beneficiary of these stipulated documents and compliance with the terms of the credit. Q: Enumerate the other parties. A: Advising or Notifying bank

A: No, such order violates the irrevocable nature of the letter of credit. The terms of an irrevocable letter of credit cannot be changed without the consent of the parties, particularly the beneficiary thereof. Parties to a letter of credit Q: Who are the parties to the letter of credit? A: 1. 2. 3.

Applicant Beneficiary Issuing bank

Paying bank

Confirming bank

Q: Who is the applicant? A: He may be a buyer, importer or obligor. The person who procures the opening of letter of credit and who agrees to

Negotiating bank

Not liable to pay the beneficiary; it does not have any contractual relations with the beneficiary. Its only obligation is to determine the apparent authenticity of the letter of credit; to check if at first glance that the same is genuine or valid: a. If valid, the advising/notifying bank notifies the beneficiary of the letter of credit; transmit the letter of credit in favor of the beneficiary so that the beneficiary can cause shipment of the equipment An agent of the issuing bank for the purpose of making payment to the beneficiary. He can also be the advising bank It lends credence to a letter of credit issued by a lesser known bank as if it is the one who issued the letter of credit. Its obligation is similar to an issuing bank. Thus, beneficiary may tender documents to the confirming bank and collect payment The bank in the city of the beneficiary which buys or discounts the drafts contemplated by the LC, if such draft is to be drawn on the opening bank not in the city of the beneficiary 26 UNIVERSITY OF SANTO TOMAS


Correspondent bank of issuing bank

If the account party is in the Philippines and the beneficiary is abroad, the beneficiary will be notified and consequently will be paid through the correspondent bank

Q: Describe the duty of the advising bank? A: It determines the apparent authenticity of the letter of credit and notifies the beneficiary of the letter of credit. He does not guarantee the genuineness or due execution of the letter of credit. It is not liable for damages even if it turns out to be spurious provided the spurious character is not apparent on the face of the instrument.

Q: Does the advising bank have the obligation to pay the beneficiary? A:

GR: No XPN: When the advising bank is also the confirming or paying bank

A: Once the issuing bank shall have paid the beneficiary after the latter’s compliance with the terms of the LC. Presentment for acceptance to the customer/applicant is not a condition sine qua non for reimbursement. Q: Is presentment a condition prior to reimbursement? r eimbursement? A: Presentment for acceptance to the customer or applicant of the drafts drawn by the beneficiary is not a condition sine qua non for reimbursement (Prudential Bank & Trust Co. v. IAC, 216 SCRA 257, 1992)

Q: What is the consequence of payment upon an expired LC? A: An issuing bank which paid the beneficiary of an expired letter of credit can recover the payment from the applicant which obtained the goods from the beneficiary to prevent unjust enrichment. Q: Should the marginal deposit made by the customer, in possession of the bank be first deducted from the principal indebtedness before computing the interest?

Three distinct relationships arising from a letter of credit Q: Explain the three (3) distinct but intertwined contract relationships that are indispensable in a letter of credit transaction. 1.

2.

3.

Between the applicant/buyer/importer and the –The applicant/ buyer/ beneficiary/seller/exporter –The importer is the one who procures the letter of credit while the beneficiary/seller/exporter is the one who in compliance with the contract of sale ships the goods to the buyer and delivers the documents of title and draft to the issuing bank to recover payment for the goods. Their relationship is governed by the contract of sale. Between the issuing bank and the – The issuing bank is the one beneficiary/seller/exporter – The that issues the letter of credit and undertakes to pay the seller upon receipt of the draft and proper documents of title. On the other hand, the beneficiary/seller/exporter surrenders document of title to the bank in compliance with the terms of the LC. Their relationship is governed by the terms of the LC. Between the issuing bank and the – The applicant/buyer/ applicant/buyer/importer – importer obliges himself to reimburse the issuing bank upon receipt of the documents of title. Their relationship is governed by the terms of the application for the issuance of the letter of credit by the bank.

NOTE: These relationships while interrelated are distinct and separate from each other.

A: Yes, since it is supposed to be returned upon compliance with his obligation. Indeed, it would be onerous to compute interest and other charges on the face value of the letter of credit which the issuing bank issued, without first crediting or setting off the marginal deposit which the importer paid to it. Requiring the importer to pay the interest on the entire letter of credit without deducting first his marginal deposit would be a clear case of unjust enrichment by the bank. NOTE: The applicant has the right to have the marginal deposit deducted from the principal obligation under the letter of credit and to have the interest computed only on the balance and not on the face value thereof. Doctrine of Independence Q: What is the doctrine of independence? A: Under this doctrine, the obligation of the issuing bank to pay the beneficiary does not depend on the fulfillment or non-fulfillment of the contract supporting the letter of credit. If it is a commercial letter of credit, the obligation if the issuing bank to pay the beneficiary is not affected by any breach of contract by the seller to the buyer because the contract between the issuing bank and beneficiary is separate and distinct from the contract between the seller and the buyer. Q: Does the issuing bank have the obligation to determine whether or not the main contract has been fulfilled or not?

Q: When is the bank entitled to reimbursement? 27 UNIVERSITY OF SANTO TOMAS


A: No. The issuing bank is liable to pay the beneficiary upon the latter’s submission of the stipulated documents and compliance with the terms of the credit regardless of any breach of contract by the beneficiary to the applicant of the letter of credit.

document stipulated must be the document to be submitted, otherwise, the issuing bank is not liable or the beneficiary is not entitled to payment.

The SC held that banks deals with documents, t hey don’t deal with goods. The issuing bank has no obligation to check the object, the quantity or quality of the goods. The bank needs not to verify or go beyond the four corners of the document. The issuing bank will determine the documents to be submitted, where the stipulated documents tendered faithfully. If the documents were submitted, the issuing pays the seller.

TRUST RECEIPT

Q: What is the exception to the doctrine of independence?

Definition Q: What is a trust receipt transaction? A: It is any transaction between the entruster and entrustee whereby the entruster who owns or holds absolute title or security interests over certain specified goods, documents or instrument, releases the same to the possession of entrustee upon the latter’s execution of a TR agreement.

A: Fraud exception principle Fraud exception Principle Q: What is the Fraud exception principle? A: The beneficiary may be enjoined from collecting on the letter of credit if the following elements are present: a. There is fraud on the part of the beneficiary b. Fraud must be in relation to the independent purpose or character of the credit c. Unless the beneficiary is restrained, the applicant shall suffer grave and irreparable injury.

It is a transaction wherein the entrustee binds himself to hold the designated goods in trust for the entruster and, in case of default, to sell such goods, documents or instrument with the obligation to turn over to the entruster the proceeds to the extent of the amount owing to it or to turn over the goods, documents or instrument itself if not sold.

NOTE: To be in the nature of a trust receipt, the entruster should have financed the acquisition or importation of the goods. The funds should have been delivered before or simultaneously with delivery of the goods. Q: What is a trust receipt (TR)?

NOTE: To be an exception, the fraud must NOT be in relation to the performance of the main contract but in relation to the independent purpose or character of the credit. Q: What is the remedy for a fraudulent abuse? A: Injunction. Doctrine of Strict Compliance Q: How should commercial transaction involving letter of credit be complied?

A: It is the written or printed document signed by the entrustee in favor of the entruster containing terms and conditions substantially complying with the provisions of PD 115. Q: What is the consequence where the execution of the trust receipt agreement was made only after the goods covered by it had been purchased by and delivered to the entrustee and the latter as a consequence acquired ownership over the goods?

A: Commercial transaction involving letters of credit are governed by the rule on strict compliance.

A: In such case, the transaction does not involve a trust receipt but a simple loan even though the parties denominated the transaction as one of trust receipt

Q: What is the so-called doctrine of strict compliance?

(Colinares v. CA, 339 SCRA 609, 2000; Consolidated Bank and Trust Corp., v. CA, 356 SCRA 671, 2001.)

A: The documents that the beneficiary should submit to the issuing bank or confirming bank must strictly conform to the documents stipulated. If there is discrepancy, the issuing bank is not liable to pay. If it pays, it pays at its own risk and cannot obtain reimbursement from the applicant. It matters not that the submission of the documents are unfair, unjust or inequitable, the point is, it requires that the

Parties to a trust receipt agreement Q: Who are the parties to a trust receipt agreement? A: 1. 2.

Entruster Entrustee


NOTES ON SPECIAL COMMERCIAL LAWS Kenneth and King C. Hizon (3A)_____________________________________________________________________________________________________________ responsible for the offense, without prejudice to the civil liabilities arising Q: Who is an entruster? from the criminal offense.

A: A lender, financer or creditor. Person holding title over the goods documents or instruments (GDI) subject of a trust receipt transaction; releases possession of the goods upon execution of trust receipt. Q: Who is an entrustee? A: A borrower, buyer, importer or debtor. Person to whom the goods are delivered for sale or processing in trust, with the obligation to return the proceeds of sale of the goods or the goods themselves to the entruster LCs and TRs, not negotiable instruments Q: Are letters of credit and trust receipt considered as negotiable instruments?

P.D 115 is not violative of the constitutional provision against imprisonment for the non-payment of debt Q: Is PD 115 violative of the constitutional provision against imprisonment for the non-payment of debt? A: No because what is sought to be penalized is not the nonpayment of debt but the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another. It punishes the act not as an offense against property but against public order (People v. Nitafan, 207 SCRA 726, 1992). NOTE: The penal sanction covers: 1. Criminal liability 2. Civil liability

A: No, but drafts in connection with the former are negotiable instruments (Lee v. CA 375 SCRA 579, 2002). 2 features of a trust receipt agreement a. b.

Loan feature Security feature

Q: Discuss the dual features of a trust receipt agreement. A: A trust receipt has a loan and security features. The entruster (bank) extends loan to the entrustee (importer and retail dealers) to finance the importation of goods or instruments in favor of the entrustee who may not be able to obtain credit except thru utilization of the merchandise imported or purchased. The security feature is in the covering trust receipt which secures the indebtedness.

Effect of failure on the part of entrustee to comply with its obligations Q: What is the effect of payment of the loan or delivery of the sale proceeds equivalent to the full amount? A: It extinguishes both criminal and civil liabilities of the entrustee. Section 13. Penalty clause. The failure of an entrustee to turn over the proceeds of the sale of the goods, documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of Article Three hundred and fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as amended, otherwise known as the Revised Penal Code. If the violation or offense is committed by a corporation, partnership, association or other juridical entities, the penalty provided for in this Decree shall be imposed upon the directors, officers, employees or other officials or persons therein

Estafa Q: What is the effect of the failure of the entrustee to deliver the proceeds of the sale of the goods or instruments subject to the trust receipt or return the goods? A: It will constitute estafa. Q: May the civil action for the collection of the loan be instituted independently of the criminal action? A: Yes. Q: What is the effect of the acquittal of the entrustee in the criminal case as a result of the surrender or consignation of the goods? A: The acquittal of the entrustee in the criminal case as a result of the surrender or consignation of the goods is not a bar to the filing of a separate civil action to enforce payment of the loan (Vintola v. Insular Bank of Asia and America, 150 SCRA 140, 1987).

Q: What is the effect of compromise of estafa case arising from trust receipt transaction, after the case has been filed in court? A: Compromise of estafa case arising from trust receipt transaction, after the case has been filed in court does not amount to novation and does not erase the criminal liability of the accused (Ong v. CA, 124 SCRA 578, 1983). Penalty in case of corporation Q: What if the entrustee is a corporation? A: In such case, the law makes the officers or employees or other persons responsible for the offense liable to suffer the 29 UNIVERSITY OF SANTO TOMAS


penalty of imprisonment. The criminal liability falls on the human agent responsible for the violation of the Trust Receipt Law. A person who admits being the agent of the entrustee corporation is a person responsible for the off ense if he is the signatory of the trust receipts and if he cannot explain why he is not responsible for the failure to turn over the proceeds of the sale or account for the goods covered by the trust receipt.

Q: Why are the officers, employees, etc. of a corporation responsible for the offense? A: It is because they are vested with the authority and responsibility to devise means necessary to ensure compliance with the law, and if they fail to do so, are held criminally accountable. Yet, a corporation may be charged and prosecuted for a crime if the imposable penalty is fine (Ching v. Sec. of Justice, 481 SCRA 609, 2006)

Q: Is the person signing the trust receipt for the corporation solidarily liable with the entrustee-corporation for the civil liability arising from the criminal offense?

Q: When does the penal sanction under the trust receipts law apply? A: Jurisprudence provides that the penal sanction does not apply in case the goods are not intended for sale or resale as when they are for actual use. Cases where no criminal liability despite execution of TR agreement 1.

Compliance with the terms of the trust receipt either by: a. payment, b. return of the proceeds or c. return of the goods.

2.

The transaction is not a trust receipt within the contemplation of the trust receipts law Surrender of the goods to the entruster Non-delivery of the goods to entrustee Compromise agreement before the filing of the criminal information for violation of the TR law Cancellation of the trust and taking possession by the entruster

3. 4. 5. 6.

A: No. He may however be personally liable if he bound himself to pay the debt of the corporation under a separate contract of surety or guarantee (Ong v. CA, 401 SCRA 649, 2003). Q: Can we file a criminal case against the corporation? A: It depends, if the penalty is imprisonment, we cannot file a criminal case, but if the penalty is a fine or forfeiture or revocation of the corporation’s franchise, then we can. Civil obligation remains as long as loan is not paid Q: What is the effect of non-payment of the loan? A: The civil obligation still remains. Q: What is the effect of the loss of the goods subject of the trust receipt? A: Loss of the goods subject of the trust receipt, regardless of the cause does not extinguish the civil liability of the entrustee. Q: What is the effect of return of goods? A: If the loan is not yet paid, the return of the goods may extinguish the criminal liability but not the civil liability of the entrustee unless the goods are sold and the proceeds thereof applied in full payment of the loan. Penal sanction applies to goods intended for sale only

NOTE: Mere repossession of the goods will extinguish criminal liability. 7. 8.

Loss of the goods due to f orce majeure Consignment

Entrustee, owner of the articles subject of the TR Q: Who is the owner of the articles subject of the TR? A: The entrustee. A trust receipt has two features, the loan and security features. The loan is brought about by the fact that the entruster financed the importation or purchase of the goods under TR. Until and unless this loan is paid, the obligation to pay subsists. If the entrustee is made to appear as the owner, it was but an artificial expedient, more of legal fiction than fact, for if it were really so, it could dispose of the goods in any manner that it wants, which it cannot do. To consider the entrustee as the true owner from the inception of the transaction would be to disregard the loan feature thereof. (Rosario Textile Mills Corp. v. Home Bankers Savings and Trust Company, 2005)

Q: Can the entrustee mortgage or pledge the articles in trust? A: The articles covered by the trust receipts are owned by the entruster and they were only held by the entrustee in trust. While it was allowed to sell the items, the entrustee had no opportunity to dispose of them or any part thereof or their proceeds through conditional sale, pledge or any other means. Accordingly, the entrustee has neither ownership, 30 UNIVERSITY OF SANTO TOMAS


free disposal nor the authority to freely dispose of the articles. Hence, the entrustee could not have subjected them to a chattel mortgage (DBP v. Prudential Bank, 475 SCRA 623, 2005).

NOTE: The entrustee cannot mortgage the goods because one of the requisites of a valid mortgage is that the mortgagor must be the absolute owner of the property mortgaged or must have free disposal thereof. Entrustee is not the absolute owner of the goods nor has the free disposal thereof. Receipt of bank of sum of money without reference to trust receipt obligation

Q: Who can defeat the rights of the entruster over the goods? A: A purchaser in good faith. He acquires goods, documents or instruments free from the entruster's security interest. Goods covered by TR not subject to levy Q: Are the goods covered by a trust receipt subject to levy? A: GR: No, the law warrants the validity of entruster’s security interest as against creditors of the trust receipt agreement during the duration of the trust receipt agreement.

Q: What is the effect of the receipt of the bank of a sum of money without reference to the trust receipt obligation to which the same pertains?

XPN: When the properties are in the hands of an innocent purchaser for value and in good faith (Prudential Bank v.

A: It does not obligate the bank to apply the money received against the trust receipt obligation.

Obligations or liability of the entrustee

Q: Does it have the effect of compensation? A: No since compensation is not proper when one of the debts consist in civil liability when one of the debts consists in civil liability arising from a criminal offense (Metropolitan Bank and Trust Company v. Tonda, 338 SCRA 254, 2000). Rights of the entruster Q: What are the right of an entuster? A: 1.

2.

3.

To be entitled to the proceeds of the sale of the goods under trust receipt to the extent of the amount owing to him or to return the goods in case of non-sale To cancel the trust and take possession of the goods or of the proceeds realized therefrom at any time upon default by the entrustee To sell the goods with at least 5-day notice to the entrustee and apply the proceeds in payment of the obligation. Entrustee is liable to pay deficiency, if any.

Validity of the security interest as against creditors of the entrustee/innocent purchasers for value Q: As between the entruster and the creditors of the entrustee, who has a better right over the goods? A: The entruster. His security interest in goods, documents, or instruments pursuant to the written terms of a trust receipt shall be valid as against all creditors of the entrustee for the duration of the trust receipt agreement.

NLRC, 251 SCRA 421, 1995).

Q: What are the obligations and liabilitites of the entrustee? A: 1. To hold good, documents and instruments (GDI) in trust for the entruster and to dispose of them strictly in accordance with the terms of TR; 2. To receive the proceeds of the sale for the entruster and to turn over the same to the entruster to the extent of amount owing to the entruster; 3. To insure GDI against loss from fire, theft, pilferage or other casualties. 4. To keep GDI or the proceeds thereof, whether in money or whatever form, separate and capable of identification as property of the entruster; 5. To return GDI to the entruster in case they could not be sold or upon demand of the entruster; and 6. To observe all other conditions of the trust receipts. (Sec. 9, P.D. 115)

Order for application of proceeds

Q: What is the order in the application of proceeds of the TR transactions? A: 1. Expenses of the sale 2. Expenses derived from storing the goods 3. Principal obligation

Q: Is the entrustee liable for the deficiency? A: Yes, but any excess shall likewise belong to him.



Liability for loss of goods, documents or instruments

agreement (South City Homes, Inc. v. BA Finance Corporation, 371 SCRA 603, 2001).

Q: Who shall bear the loss of goods which are the subject of TR?

CHATTEL MORTGAGE A: The entrustee. Loss of goods, documents or instruments which are the subject of a TR, pending their disposition, irrespective of whether or not it was due to the fault or negligence of the entrustee, shall not extinguish his obligation to the entruster for the value thereof. (Sec. 10, P.D. 115) NOTE: The principle of res perit domino will not apply against the entruster Remedies Q: What are the remedies available to the entruster? A: 1.

File a criminal action for estafa in case of failure of the entrustee to deliver the proceeds of the sale of the goods under the trust receipt up to the extent of his obligation to the entruster.

NOTE: The civil action may be instituted: a. b.

In the criminal action Separately filed independently of the criminal action

CRIMINAL ACTION Based on ex-delicto 2. 3.

4.

CIVIL ACTION Based on ex-contracto

Cancel the trust and take possession of the goods at any time upon default of the entrustee After the repossession, the entruster may sell the goods upon at least 5-day notice to the entrustee and apply the proceeds in payment of the obligation. The entrustee is liable for deficiency or entitled to excess, if any. If a surety secures the obligation of the entrustee in addition to the trust receipt, the law does not obligate the entruster to cancel the trust or take possession of the goods. He can proceed against the surety. The options belong to the entruster.

Q: What is a chattel mortgage? A: An accessory contract whereby a personal property is recorded in the Chattel Mortgage Register to secure the performance of a principal obligation. NOTE: The concept of a chattel mortgage as a conditional sale under the old chattel mortgage law has been supplanted by the definition of chattel mortgage under Art 2140 of the Civil Code. It is now an accessory contract, no longer a conditional sale. CHARACTERISTICS OF CHATTEL MORTGAGE 1. 2.

3.

NOTE: The extinguishment of the accessory contract does not extinguish the principal contract; the extinguishment of the principal contract extinguishes the accessory contract. ESSENTIAL REQUISITES Q: What are the essential requisites for a valid chattel mortgage? A: 1. 2. 3.

Q: In the event of default, is it mandatory or compulsory for the entruster to cancel the trust and take possession of the goods to be able to enforce his rights? A: No, the law uses the word “may” in granting to the entruster the right to cancel the trust and take possession of the goods. Thus, he has the discretion to avail itself of such right to sue or seek alternative actions, such as third party claim or a separate civil action which it deems bets to protect its right, at any time upon default or failure of the entrustee to comply with any of the terms and conditions of the

An accessory contract because it is for the purpose of securing the performance of a principal obligation; A formal contract because of its enforceability, registration in the Chattel Mortgage Register is indispensable; A unilateral contract because it produces only obligations on the part of the creditor to free the thing from encumbrance on the fulfillment of the obligation.

4.

Constituted to secure fulfillment of the principal obligation Mortgagor is the absolute owner of the property Mortgagor has free disposal of the property, in the absence thereof, that he be legally authorized for such purpose That it involves a personal property. (Sec. 2085,NCC)

FORMAL REQUISITES Q: What are the formal requisites for a valid chattel mortgage? A: 1.

Affidavit of good faith 32 UNIVERSITY OF SANTO TOMAS


2. 3.

Registration with the Chattel Mortgage Registry If necessary, additional registration with the proper government agency

Q: Explain the “Dual registration rule”?

A: The property must be registered:

Affidavit of Good Faith

a. b.

Place where the mortgagor resides In the place where the property is situated

Q: What is an affidavit of good faith? XPN: A: A certificate included in the chattel mortgage contract executed by both mortgagor and mortgagee stating that: 1. 2.

a.

The obligation is valid, just and subsisting; and It is not one entered into for purposes of fraud.

b.

Q: What is the effect of absence of affidavit of good faith? A: It does not affect the validity of the chattel mortgage but the same will be unenforceable against third persons. Q: What is the status of an unrecorded CM? A: The mortgage is valid and binding between the parties. Registration is necessary only for the purpose of binding third person.

If the mortgagor resides in the same place where the property is located; or If the amount of the loan is more than P500,000.00, registration should be made in the city or municipality where the property is situated (P.D. 1159, Sec. 113 & 114)

RULES: Private vehicle Public vehicle Vessels Aircrafts

motor

Land Transportation Office (LTO)

motor

Land Transportation Franchise & Regulatory Board (LTFRB) Maritime Industry Authority (MARINA) Civil Aviation Authority of the Philippines (CAAP)

NOTE: In an action for collection, the non-registration of the chattel mortgage which ordinarily does not bind third persons is not critical. The rule is different when the remedy resorted to is foreclosure.

Q: Distinguish chattel mortgage from pledge.

Q: What is the effect if the mortgage is not registered?

A:

Chattel mortgage vs. Pledge

CHATTEL MORTGAGE

PLEDGE

A: It is nevertheless binding between the parties. Q: What is the period within which the registration should be made? A: The law does not provide any specific time. Yet, the law is substantially and sufficiently complied with: a. where the registration is made by the mortgagee before the mortgagor has complied with his principal obligation and; b. no right of innocent third persons Is prejudiced. Q: What is the effect of registration? A: It creates real right—it is an effective and binding notice to the other creditors of its existence and creates a real right or lien which follows the chattel wherever it goes. The registration gives the mortgagee symbolical possession. The efficacy of the act of recording a chattel mortgage consists in the fact that it operates as a constructive notice of the existence of the contract.

Dual Registration rule

Delivery Delivery is not necessary Delivery is necessary Registration Registration in the Chattel Registration in the Registry Mortgage register is Property is not necessary. necessary for its enforceability Security Cannot secure future Can secure future obligations obligations Law governing the sale Procedure for the sale of the Art. 2112, NCC thing given as security is governed by Sec. 14, Act No. 1508 Excess If the property is foreclosed, If the property is sold, the the excess goes to the debtor debtor is not entitled to the excess unless otherwise agreed. Recovery of deficiency The creditor is entitled to The creditor is not entitled to recover the deficiency from recover the deficiency the debtor except if the notwithstanding any 33 UNIVERSITY OF SANTO TOMAS


chattel mortgage is a security for the purchase of property in installments

stipulation to the contrary.

Possession Possession remains with the Possession is vested in the debtor creditor Contract Formal contract Real contract Recording in a public instrument Must be recorded in a public Must be in a public instrument to bind third instrument containing persons description of the thing pledged and the date thereof to bind third persons

SUBJECT MATTER OF CHATTEL MORTGAGE

A: It is to be considered as personal property and the chattel mortgage constituted thereon is null and void, regardless of who owns the land. However, the chattel mortgage is binding on the contracting parties but cannot prejudice innocent third parties (Makati Leasing and Finance Corp. v. Wearever Textile Mills, Inc. 122 SCRA 296, 1983).

In accordance with Art. 2125 of the Civil Code, an unregistered chattel mortgage is valid and binding between the parties because registration is necessary only for the purpose of binding third persons (Filipinas Marble Corp. v. IAC, 142 SCRA 180, 1986).

Q: What is the appropriate remedy to unbolt the machinery preparatory to the extra-judicial foreclosure? A:

Q: What is the subject matter of chattel mortgage?

1.

A: It must always be personal or movable property.

2.

Q: What are the properties mortgageable under the law?

Action for replevin preparatory to extra-judicial foreclosure Simply, judicially foreclose

Mortgagee vs. Innocent purchaser for value

A:

In one case, the court held that chattel mortgage over a

1.

house is valid between the contracting parties even though it is a real property. Since it is a valid mortgage, the mortgagee can foreclose in case of default.

2. 3. 4.

5.

6. 7. 8.

9.

Shares of stock in a corporation- If the owner of the shares is not domiciled in the same province where the corporation is domiciled, the registration must be made in both provinces. An interest in business, for its personal proper capable of appropriation; Machinery treated by the parties as personal property subsequently installed on leased land; Vessels but it is essential that the mortgage is recorded in the office of the MARINA (Maritime Industry Authority) to be effective as to third persons. It is not necessary that it be recorded in the office of the register of deeds; Motor vehicles-which must be registered with the Land Transportation Commission (LTO) and with respect to vehicles used for public services, it must also be approved by the Public Service Commission (LTFRB); House of mixed materials; House intended to be demolished for what are really mortgaged in this case are the materials thereof; House built on rented land since it did not form part of the land; It is settled that an object placed on land by one who had only a temporary right to it does not become immobilized by attachment; A house of strong materials- as long as the parties to the contract so agree and no innocent third party will be prejudiced thereby.

Q: What is the effect if a chattel mortgage is constituted on machinery permanently attached on the ground?

But, even if he has foreclosed the chattel mortgage, it does not bind the judgment creditor of D because it does not affect innocent 3rd parties. That conclusion will not change even if the mortgagee sold the house to a 3rd party, an innocent purchaser for value. That innocent purchaser for value has a right inferior compared to the rights of the judgment creditors of D for the simple reason that the innocent purchaser for value simply steps into the shoes of the original mortgagee and acquires only whatever rights, title, or interest that the mortgagee originally had over the house and subject to the same limitations. If the right of the right of the original mortgagee is enforceable only against the mortgagor, the right of the innocent purchaser for value, the assignee of the original mortgagee is also valid and enforceable only against the mortgagor. But, that does not prejudice or rd affect innocent 3 parties, like judgment creditors of the mortgagor.

After-Acquired Property Q: Can the CM cover after‐acquired properties? 34 UNIVERSITY OF SANTO TOMAS


foreclosure can only cover the debts extant at the time of constitution and during the life of the CM sought to be foreclosed.

A: GR: No, because Section 7 of Act 1508 provides: A chattel mortgage shall be deemed to cover only the property described therein and not like or substituted property thereafter acquired by the mortgagor and placed in the same depository as the property originally mortgage. XPN: Where the after‐acquired property is in renewal of, or in substitution for, goods on hand when the mortgage was executed, or is purchased with the proceeds of the sale of such goods. NOTE: While pledge, real estate mortgage, or anti-chresis may secure after-incurred obligations so long as these future debts are accurately described, a chattel mortgage can only cover obligations existing at the time the mortgage is constituted. Although the promise expressed in the chattel mortgage to include debts that are yet to be contracted can be a binding commitment that can be compelled upon, the security itself, however, does not come into existence or arise until after a chattel mortgage agreement covering the newly contracted debt is executed either by: a. concluding a fresh chattel mortgage or b. by amending the old contract conformably with the form prescribed by the Chattel Mortgage Law

Q: Does the law require a minute and specific description of every chattel mortgage in the deed of mortgage?

Dragnet clause Q: What is a dragnet clause? A: It is a clause which operates as a convenience and accommodation to the barrowers as it makes available additional funds without their having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording f ees etc. It subsumes all debts of past o r future origin.

Q: How do you construe such clause? A: It must be carefully scrutinized and strictly construed particularly where the mortgage contract is one of adhesion. NOTE: A mortgage given to secure future advancements is a continuing security and is not discharged by the repayment of the amount named in the mortgage, until the full amount of the advancements is paid. It permitted the mortgagor to take the money as it is needed and thus avoid the necessity of paying interest until the necessity for its use actually arises. Remedies available in case of simple loan Q: What does the word “default” cover?

A: A: No, it only requires that the description of the mortgaged property be such as to enable the parties to the mortgage or any other person to identify the same after a reasonable investigation and inquiry.

1. 2.

non-payment violation of the terms of the a greement

Q: What is the effect of stipulation prohibiting the mortgagor from exercising acts of ownership?

After-Incurred Obligation Q: Can the CM cover after‐incurred obligations?

A: No, the affidavit of good faith in a CM makes it obvious that the debt referred to in the law is current, not an obligation that is yet merely contemplated. (Acme Shoe v. CA, G.R. No. 103576, Aug. 22, 1996)

Q: What then is the consequence of a CM covering after‐incurred obligations? A: A promise expressed in a CM to include debts that are yet to be contracted can be a binding commitment that can be compelled upon. The security itself, however, does not come into existence or arise until after a CM agreement covering newly contracted debt is executed either by concluding a fresh CM or by amending the old contract conformably with the form prescribed by the CM law. The remedy of

A: Such agreement is void. Since the mortgagor remains the owner of the chattel, he can sell it even if the chattel mortgage agreement prohibits the mortgagor from selling the chattel without the consent of the mortgagee. The sale, however, is without prejudice to: a. his criminal prosecution under the permanent provisions of the RPC b. the sale can be considered as violation of the terms of the chattel mortgage

Q: What are the remedies in case of default? A: 1. 2.

action for collection foreclosure

NOTE: There is no rescission in case of simple loan. 35 UNIVERSITY OF SANTO TOMAS


Q: What is the nature of these remedies?

power, upon default of the debtor, to foreclose the mortgage by an extrajudicial sale of the mortgaged property.

A: They are alternative remedies. The election of one bars the other remedies.

Q: What is the remedy if the mortgagee cannot obtain possession of mortgaged property?

NOTE: The mere filing of the collection case bars the foreclosure, regardless of the venue (whether here or abroad).

A: If a mortgagee cannot obtain possession of a mortgaged property for its sale on foreclosure, the mortgagee cannot take the property by force but must institute the appropriate action in the court. a. He must bring a civil action for replevin either to recover such possession as preliminary step on the extra-judicial foreclosure of the chattel mortgage or b. judicial foreclosure.

Foreclosure Q: What is foreclosure? A: It is the remedy available to the mortgagee by which he subjects the mortgaged property to the satisfaction of the obligation to secure which the mortgage was given through the sale of the property at public auction and the application of the proceeds thereof to the payment of his claim.

NOTE: Foreclosure can be: 1. public sale 2. private sale, if stipulated by the parties Two-bidder Rule

Q: State the essence of a contract of mortgage? Q: What is the so- called “Two-bidder rule”? A: The essence of a contract of mortgage indebtedness is that a property has been identified or set apart from the mass of the property of the debtor-mortgagor as security for the payment of money or the fulfillment of an obligation to answer the amount of indebtedness in case of default of payment. Q: What are the kinds of foreclosure?

A: There must be at least 2 participating bidders for the auction sale to be valid. Q: Does the two-bidder rule apply to chattel mortgage? A: No, it only applies to pledge.

Twin Periods Rule

A: 1. judicial foreclosure 2. extra-judicial foreclosure

Judicial foreclosure Q: What is judicial foreclosure? A: By bringing an action for that purpose in the RTC of the province or city where the real property or any part therof lies.

Q: What is the “ twin periods rule ”? A: In case of the equity of redemption, the mortgagor has the right to prevent the sale by paying the debt within 30 days from default. So it is a grace period that the law affords in favor of the mortgagor. Within the 30 days grace period there must be a “Notice of sale” given to the mortgagor. Also, there must be a 10-day notice to the mortgagor prior to the sale.

The proceeds of the sale shall be applied to the payment of the: a. b. c. d.

Costs of the sale; Amount due to the mortgagee; Claims of persons holding subsequent mortgages in the order of their priority; and Balance if any shall be paid to the mortgagor.

Extra-judicial foreclosure Q: What is Extra-judicial foreclosure?

Claim of deficiency Q: Can the mortgagee claim in case of deficiency? A: GR: Yes, mortgagee is entitled to recover deficiency. XPNS: 1. 2.

Contrary stipulation Transactions covered by Recto Law (Art. 1484, NCC)

A: A mortgage may be foreclosed extra judicially where there is inserted in the contract, a clause giving the mortgagee the 36 UNIVERSITY OF SANTO TOMAS


3.

4.

In accommodation mortgages, the accommodation mortgagor is liable only to the extent of the value of the mortgaged property; Due to death of mortgagor.

Q: In case of pledge, is a stipulation to recover deficiency valid? A: No, it is void. Q: Does the claim for deficiency prescribe? A: A mortgage action prescribes in 10 years from the time the right of action accrues, that is, from the time the mortgagor defaults in the payment of his obligation to the mortgagee and not from the date of the execution of the mortgage contract. Accommodation mortgagor

3.

Transactions covered by Recto Law (Articles 1484 & 1485 of the civil code Civil Code) ART. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the vendee's failure to pay cover two or more installments; (3) Foreclose the chattel mortgage on the thing sold if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.

Q: When does the Recto Law apply? A: 1.

Q: Who is an “accommodation party”?

A: He is a person who has signed the instrument as maker, drawer, acceptor, or indoser without receiving value therefor, and for the purpose of lending his name to some other persons. He is liable on the instrument notwithstanding that such holder at the time of taking the instrument knew such person to be only an accommodation party. The accommodation party has right, after paying the holder, to obtain reimbursement from the party accommodated since the relation between them is in effect that of principal and surety, the accommodation party being the surety. NOTE: Ordinarily, the debtor is also the mortgagor, but it is rd also possible that a 3 party may constitute a mortgage in favor of the mortgagor. This arrangement is valid even if the accommodating party does not receive anything. Q: What is the extent of the liability of the accommodation mortgagor? A: His liability is limited only to the value of the property he secured for another. Death of mortgagor Q: What is the remedy in case of death of the mortgagor? A: 1.

2.

File a money claim against the estate (whether real property or personal property). If the mortgagee chose this remedy, he is deemed to have abandoned the mortgage and he lost priority. To foreclose the mortgage by ordinary action in court and recover any deficiency against the estate in administration; and,

To foreclose without action at any time within the period allowed by the statute of limitations

2.

Sale of personal property, the price of which is payable in two or more installments Contracts purporting to be leases of personal property with option to buy (Art. 1485, NCC)

Q: What are the requisites for the sale to be covered under the Recto Law? A: 1. 2. 3.

Sale of personal property Payable in installments CM constituted over the same property

Q: Under the Recto Law, what are the remedies of the unpaid seller? A: 1. 2. 3.

Exact fulfillment of the obligation, should the vendee fail to pay (action for specific performance) Cancel the sale, should the vendee’s failure to pay cover two or more installments (rescission); or Foreclose the chattel mortgage on the thing sold, should the vendee’s failure to pay cover 2 or more installments.

Q: Can the unpaid seller avail of all remedies? A: No, the remedies are alternative. The three remedies under this article, available to the vendor who has sold personal property on the installment plan, are alternative, not cumulative. In other words, if the vendor has elected to avail himself of any of the remedies, he is deemed to have renounced the others (Tolentino, Vol.V) .

Q: What is the reason for this rule? 37 UNIVERSITY OF SANTO TOMAS


A: According to Sen. Tolentino, in case the vendor elects to foreclose the mortgage, if one has been given on the property, he is not obliged to return to the purchaser the amount of the installment already paid should there be an agreement to that effect, and it is not unconscionable.

NOTE: In all proceedings for the foreclosure of chattel mortgages, executed on the chattels, which have been sold on the installment plan, the mortgagee is limited to the property only in the mortgage. Thus, the principal object of Article 1484 was to remedy the abuses committed in connection with the foreclosure of chattel mortgages. This prevents mortgagees from seizing the engaged property, buying it at foreclosure for a low price and then bringing suit against the mortgagor for the deficiency judgment. The almost invariable result of this procedure was that the mortgagor found himself minus the property and still owing practically the full amount of the original indebtedness.

A: It is the appropriate action to recover possession preliminary to the extra-judicial foreclosure of a chattel mortgage. Q: Who can institute replevin suit? A: It is not only the owner but also a person “entitled to the possession” of the prop erty can institute a replevin suit. Q: In case of recovery of property through replevin preparatory to foreclosure, is it a bar to avail of other remedies? A: Recovery of property through a replevin case preparatory to foreclosure will not bar the other remedies if there was no actual foreclosure. If seller‐mortgagee opts to file an action for specific performance, he shall be deemed to have waived his right as a mortgagee but may still levy on the mortgaged property (on execution). REPLEVIN VOUNTARY Not akin to foreclosure Ex: surrender of the property

INVOLUNTARY Akin to foreclosure; a bar to other remedies which are alternative

NOTE: According to Dean Divina, the reason for this rule is to encourage the mortgagee/creditor to make a “reasonable bid.” If he bids at a low price, the company will record on its book of accounts the deficiency as a loss. To prevent this situation, the mortgagee will bid at a reasonable amount.

Not a bar to avail of other remedies

Art. 1484 not applicable in case mortgagee is not the vendor

Q: Is the mortgagee’s letter informing the mortgagor of his intent to foreclose is already considered a foreclosure of the chattel?

Q: Does Article 1484 apply as against a mortgagee who is not the venodor of the chattel mortgaged? A: Art. 1484 of the NCC does not apply as against a mortgagee who is not the vendor of the chattel mortgaged. Thus, a suit for replevin is not equivalent to an exercise of the remedy of foreclosure under Art. 1484 of the NCC. Hence, a vendor-mortgagee is not barred from making a claim for specific performance against the buyer-mortgagor, by the mere fact that the former was already able to secure a writ of replevin. Rescission

XPN: if possession is in view of dacion en pago

A: No. A mere offer by the mortgagor to surrender the chattel, not accepted by the mortgagee, does not preclude the mortgagee from bringing suit to recover the balance of the purchase price. Q: Is mere demand sufficient to foreclose the object? A: A mere demad to surrender the object which is not heeded by the mortgagor will not amount to foreclosure, but the repossession thereof by the vendor-mortgagee would have the effect of foreclosure ( Borbon II v. Servicewide Specialist, 258 SCRA 634, 1996).

NOTE: In rescission, there should be “mutual restitution” except in case of stipulation of forfeiture of prior payments. Replevin

Q: Is a mortgagee of a personal property sold on installments, after taking possession of the property, legally obligated to foreclose the chattel mortgage and sell it at public auction?

Q: What is replevin? A: Having opted to foreclose the chattel mortgage, GAMI can no longer cancel the sale. The three remedies of the vendor in case the vendee defaults, in a contract of sale of personal 38 UNIVERSITY OF SANTO TOMAS


property the price of which is payable in installment under Article 1484 of the Civil Code, are alternative and cannot be exercised simultaneously or cumulatively by the vendorcreditor ( Esguerra v. CA, 1989) .

Q: What are included in the term “debt” which are extinguished under the Recto Law ? A: 1. 2. 3.

Principal Interest Cost of collection

Q: Who bears the necessary expenses incurred in the prosecution by the mortgagee of the action for replevin to regain possession of the chattel? A: It is the mortgagor who bears such expenses.

note and the chattel mortgage as well as the payment of the unpaid balance. Under the law, should the vendor choose to foreclose the mortgage, he has to content himself with the proceeds of the sale at the public auction of the chattels which were sold on installment and mortgaged to him and having chosen the remedy of foreclosure, he cannot nor should he be allowed to insist on the sale of the house and lot of the vendees, for to do so would be equivalent to obtaining a writ of execution against them concerning other properties which are separate and distinct from those which were sold on installment. This would indeed be contrary to public policy and the very spirit and purpose of the law, limiting the vendor's right to foreclose the chattel mortgage only on the thing sold.

Q: What does recoverable expense include? IMPORTANT: A: It includes expenses properly incurred in affecting seizure of the chattel and reasonable attorney’s fees in prosecuting the action for replevin (Agustin v. CA, 271 SCRA 463, 1997). NOTE: The “cost of repossession” which is brought by the unjustified refusal of the mortgagor can still be recovered and is not deemed extinguished. Additional security Q: What is the effect of the foreclosure as regards the personal property which are not subject of the sale but are given as additional security? A: Under Art. 1484 of the NCC, the vendor of personal property sold on installment who chooses the remedy of

foreclosure of the chattel mortgage is limited to the foreclosure of the items sold only and not to the other items not subject of the sale although also given as additional securitty. The foreclosure of the latter is null and void (Ridad v. Filipinas Investment and Finance Corporation, 120 SCRA 246, 1983). All other additional securities are barred once the mortgagee chose to foreclose. This also bars him from going against the surety or guarantor.

Ridad v. Filipinas Investment and Finance Corporation

Having chosen to foreclose the chattel mortgage, and bought the purchased vehicles at the public auction as the highest bidder, it submitted itself to the consequences of the law as specifically mentioned, by which it is deemed to have renounced any and all rights which it might otherwise have under the promissory

SIMPLE LOAN v. RECTO LAW

SIMPLE LOAN RECTO LAW Taking of property through replevin The taking of possession by The taking of possession by replevin is not equivalent to replevin is tantamount to foreclosure foreclosure which bars the action for specific performance Remedies 1. Foreclosure 1. Action for specific 2. Action for specific performance; performance 2. Cancellation or rescission; or 3. Foreclose the chattel mortgage on the thing sold Suggested remedy Foreclose! Don’t even think Weigh the options about it because you have a lien in such case Recovery of deficiency You can recover for Precludes the mortgagee to deficiency. And the right to recover the deficiency recover deficiency may be enforced against any one of the solidary co-debtors, if any, and is not limited to the mortgagor for the reason that the chattel mortgage is just a security, not a mode of payment. Effect of election of action for collection Election of action for If it is a transaction falling collection is a bar to the under the Recto Law, its only other remedy when the mortgagee actually forecloses or elects the 39 UNIVERSITY OF SANTO TOMAS


remedy of foreclosure that he is subject to the rule that he cannot recover any unpaid claims.

BANKING LAWS: GENERAL BANKING ACT BANK

So if he files an action for collection and obtained judgment then he can levy any and all properties of the mortgagor until the debt is paid or satisfied.

Q: What are banks? A: Entities engaged in the lending of funds obtained through deposits from public. Elements

NOTE: In case of transactions under the Recto Law, it is only when there has been a foreclosure of the chattel mortgage that the vendee-mortgagor would be permitted to escape from deficiency liability. Hence, if the case is one for specific performance, even when this action is selected after the vendee has refused to surrender the mortgaged property to permit n extra-judicial foreclosure, the property may still be levied on execution.

Q: What are the elements determinative of a bank? A: 1. 2. 3.

Must be authorized by law; Accepts fund, in the form of a deposit, from the public; and (there are at least 20 despositors) Lends money to the public.

Equity of redemption Q: Is there a right of redemption in case of personal properties? A: None. Q: When is equity of redemption may be exercised? A: Equity of redemption may be exercised by the mortgagor after his default in the performance of his obligation but before the sale of the mortgaged property or confirmation of sale.

NOTE: The fourth element under the old code, habituality, has been deleted. Q: Is a transaction involving purchase of receivables considered as banking transaction? A: If it is a transaction not involving a loan but purchase of receivables at a discount, it is well within the purview of "investing, reinvesting or trading in securities" which an investment company is authorized to perform and does not constitute a violation of the General Banking Act. This transaction is known as a deposit substitute .

Q: When is the right of redemption available? A: The SC said that there are only 3 cases where there is a right of redemption. And they do not involve personal property. They only pertain to real property. There are only 3: 1. Extrajudicial foreclosure of Real Estate Mortgage under Act 3135 2. Execution sale of a real property under the Rule 39 of Rules of Court 3. Judicial foreclosure of a real estate mortgage, if the mortgagee is a bank or a credit institution

NOTE: What is prohibited by law is for investment companies to lend funds obtained from the public through receipts of deposit, which is a function of banking institutions. But here, the funds supposedly "lent" to petitioners have not been shown to have been obtained from the public by way of deposits, hence, the inapplicability of banking laws (Bañas v. Asia Pacific Finance Corp., 2000).

Paluwagan Q: Describe the concept of paluwagan?

NOTE: So the mortgagee cannot foreclose right away after default. He has to give the mortgagor 30 days grace period. That is what you call “equity of redemption”. The right of the mortgagor to prevent the sale by paying the debt within 30 days from default. It is only when he failed the debt that there can be actual foreclosure of chattel mortgage.

A: Even if there are more than 20 members, such is not considered as banks: the funds are not obtained in the form of deposits. It is for savings among its members. Deposit-taking activity Q: What is a “deposit-taking activity”?



A: The funds given to the bank gives rise to a creditor-debtor relationship. The ownership of the funds is thus transferred to the banks and the latter are free to use the funds as it pleases.

be ousted by way of quo warranto proceedings ( Republic of the Philippines v. Security Credit and Acceptance Corp, et al ., 1967).

Classification of Banks Deposit substitutes Q: What are deposit substitutes? A: It is an alternative form of obtaining funds from the public, other than deposits, through the issuance, endorsement, or acceptance of debt instruments, for the borrower's own account, for the purpose of relending or purchasing of receivables and other obligations. These instruments may include, but need not be limited to, banker’s acceptances, promissory notes, participations, certificates of assignment and similar instruments with recourse, and repurchase agreements. Quasi-banks Q: What are quasi-banks? A: These are entities engaged in the borrowing of funds through the issuance, endorsement or assignment with recourse or acceptance of deposit substitutes for purposes of re-lending or purchasing of receivables and other obligations. NOTE: Quasi-banks are also under BSP. They have to secure a license from the BSP.

1.

Universal banks ‐ can exercise the powers of an investment house and invest in non‐allied enterprises and have the highest capitalization requirement.

Capital: 4.950 billion

2.

Commercial banks ‐ Ordinary banks governed by the GBL which have a lower capitalization requirement than universal banks and can neither exercise the powers of an investment house nor invest in non‐allied enterprises.

Capital: 2.4 billion

3.

Thrift banks – These are: a) Savings and mortgage banks; b) Stock savings and loan associations; c) Private development banks, which are primarily governed by the Thrift Banks Act (R.A. 7906). 4. 5. 6. 7.

Rural banks Cooperative banks Islamic banks Other classification of banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas.

Banks vs. Quasi-Banks BANKS Obtains funds from the public in the form of deposit

QUASI-BANKS Refer to entities engaged in the borrowing of funds through the issuance, endorsement or assignment with recourse or acceptance of deposit substitutes for purposes of re‐lending or purchasing of receivables and other obligations Not insured with PDIC

Deposits are insured with PDIC There is creditor-debtor No creditor-debtor relationship relationship Must secure from the Bangko Sentral ng Pilipinas (BSP)

Quo Warranto proceedings Q: What is the appropriate proceeding to question a corporation who performs functions of a bank without the license from BSP? A: Any corporation who does these functions and activities without a corresponding license or approval from the SEC can

Bank power and liabilities Universal bank

a. b. c. d.

Commercial bank

a. b.

Powers of a commercial bank Power of an investment house Power to invest in the equities of allied enterprises Power to invest in the equities of non-allied enterprises General power incident to a corporation All such powers as may be necessary to carry on the business of commercial banking such as (ADD EBC): 1. Accepting drafts and issuing LCs 2. Discounting and negotiating promissory notes, drafts, bills of exchange, and other evidence of indebtedness 3. Accepting or creating demand deposits 4. Receiving other types of deposit and deposit substitute 5. Buying and selling foreign exchange and gold or silver bullion 41 UNIVERSITY OF SANTO TOMAS


6.

c.

Acquiring marketable bonds and other debt securities and extending credit Power to invest in the equities of allied enterprises

NOTE: Whatever a commercial bank can do, a universal bank can also perform Allied and non-allied transactions

Q: Is a safety deposit box a form of deposit or lease? A: The contract for the use of a safe deposit box should be governed by the law on lease. Under the old banking law, a safety deposit box is a special deposit. However, the new General Banking Law, while retaining the renting of safe deposit box as one of the services that the bank may render, deleted reference to depository function.

Q: What do you mean by “to invest in equity”? Sia v. Court of appeals A: It means to be a stockholder of another corporation Q: What are allied or related undertakings? A: Any undertaking which is about money such as: a. Foreign exchange b. Leasing c. Investment company d. Insurance company e. Warehousing NOTE: An example of non-allied undertaking is cargo operations.

Justice Edgardo Paras was of the opinion that the contract for the use of safety deposit box is governed by the law on lease. The Supreme Court did not agree with him and said that contract for the use of safety deposit box is a “special kind of deposit.” In other words the bank must exercise the due diligence required of depository in safekeeping or preserving of the object inside the safety deposit box. The basis for this is that under the Old General Banking Act, it provided that in renting out safety deposit boxes the bank shall act as a depositary. Because the law itself provides for this SC concluded that the contract for the use of safety deposit box is governed by deposits.

Q: What are the kinds of underwriting agreements? New Law retains the authority of the Bank to rent out safety deposit box but silent on being a depositary.

A: FIRM COMMITMENT Those which are considered as sold The underwriter purchases outright the securities and then resells the same

BEST EFFORTS underwriter does not guarantee that it will sell the entire The underwriter merely sells for commission

Banking and incidental powers Q: What are the other services that a bank may offer? A: 1. 2. 3. 4. 5. 6.

receive in custody funds, documents, and other valuable objects act as financial agent and buy and sell for the account securities make collections and payments for the account of others perform such other services not incompatible with banking business and; upon prior approval of the BSP, act as manager adviser of investment management accounts rent out safety deposit box

Renting out of deposit box

Power to acquire real properties Q: Can the bank acquire real property in settlement of a civil liability arising from a crime? A: Generally, no. XPNS: It can only acquire real property when: a. it is needed for business (Business) b. as shall be conveyed to it in satisfaction of debts previously contracted in the course of its dealings (Dacion en pago) c. as shall be mortgaged to it in good faith by way of security of debts (foreclosure) d. as it shall purchase at sales under judgments,, decrees, mortgages, or trust deeds (execution sale to satisfy judgment) NOTE: Any property acquired under b-d should be disposed of within 5 years from the acquisition because the bank is not a realty company. Q: Can banks acquire ownership of real property by virtue of the deed of transfer executed by its former employee in satisfaction of a civil liability arising from the criminal offense? 42 UNIVERSITY OF SANTO TOMAS


A: A bank cannot acquire ownership of real property by virtue of the deed of transfer executed by its former employee in satisfaction of a civil liability arising from the criminal offense since debts referred to in the law are only those resulting from previous loans and similar transactions made or entered into by a bank in the ordinary course of its business.

fall into the hands of an impostor. (Consolidated Bank and Trust Corporation vs. CA, 2003).

Q: Did a bank exercise the diligence required when the pretermination of the account is allowed despite discrepancies in the signature and photograph of the person claiming to be the depositor and failure to surrender the original certificate of time deposit?

Diligence required of banks Q: What is the degree of diligence required of banks in handling deposits? A: Extraordinary diligence. The appropriate standard of diligence must be very high, if not the highest, degree of diligence; highest degree of care (PCI Bank vs. CA, 350 SCRA 446, PBCom vs. CA, 2001)

Q: Does the bank need to exercise extra‐ordinary diligence in all commercial transactions?

A: No, the degree of diligence required of banks, is more than that of a good father of the family where the fiduciary nature of their relationship with their depositors is concerned, that is, depositary of deposits. But the same higher degree of diligence is not expected to be exerted by banks in commercial transactions that do not involve their fiduciary relationship with their depositors, such as sale and issuance of foreign exchange demand draft. (Reyes v. CA, 2001) Q: In what transactions this highest degree of care or diligence is applied?

A: No. The bank is negligent because the depositor did not present the certificate of deposit Q: Is the bank liable when an employee encashed a check without the requisite of endorsement? A: Yes. The fiduciary nature of the relationship between the bank and the depositors must always be of paramount concern. (Philippine Savings Bank vs. Chowking, 2008). NOTE: In a checking transaction, the drawee bank has the duty to verify the genuineness of the signature of the drawer and to pay the checks strictly in accordance with the drawer’s instructions—to the named payee in the check. Otherwise, the drawee will be violating the instructions of the drawer and it shall be liable for the amount charged to the drawer’s account. The drawee bank had the responsibility to ascertain the regularity of the endorsements, and the genuineness of the signatures on the checks before accepting them for deposit. Thus, banks are minded to treat their customer’s accounts with utmost care, confidence, and dishonesty (PNB v. Rodriguez, et al., 566 SCRA 513, 2008).

Nature of bank funds and bank deposits A: This applies only to cases where banks are acting in their fiduciary capacity, that is, as depository of the deposits of their depositors . (Reyes v. CA, G.R. No. 118492, 2001) NOTE: The General Banking Law of 2000 requires banks the highest degree of standards of integrity and performance. Hence, a bank is “under obligation to treat the accounts of its depositors with meticulous care” ( Philippine Savings Bank v. Chowking Food Corporation, 2008 ). Q: What is the effect when the teller gave the passbook to a wrong person? A: If the teller gives the passbook to the wrong person, they would be clothing that person presumptive ownership of the passbook, facilitating unauthorized withdrawals by that person. For failing to return the passbook to authorized representative of the depositor, the bank presumptively failed to observe such high degree of diligence in safeguarding the passbook and insuring its return to the party authorized to receive the same. The bank’s liability, however, is mitigated by the depositor’s contributory negligence in allowing a withdrawal slip signed by authorized signatories to

Q: What law governs bank deposits? A: The law on loans. Creditor and debtor relationship is created between the Bank and the depositors. Q: What is the nature of a bank deposit? A: All kinds of bank deposits are loan. The bank can make use as its own the money deposited. Said amount is not being held in trust for the depositor nor is it being kept for safekeeping. Bank not a trustee Q: Is a bank a trustee? A: No, the fiduciary nature of a bank-depositor relationship does not convert the contract between the bank and its depositors from a simple loan to trust agreement. Failure by the bank to pay the depositor is failure to pay a simple loan, and not a breach of trust.



Mandamus will not lie Q: In the enforcement of obligations concerning deposit, will the remedy of mandamus lie? A: No, because all kinds of deposit are loans. Thus, the relationship being contractual in nature, mandamus cannot be availed of because mandamus will not lie to enforce the performance of contractual obligations. Q: After procuring a checking account, the depositor issued several checks. He was surprised to learn later that they had been dishonored for insufficient funds. Investigation disclosed that deposits made by the depositor were not credited to its account. Is the bank liable for damages? A: Yes, the depositor expects the bank to treat his account with utmost fidelity, whether such account consist only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever he directs. A blunder on the part of the bank, such as the dishonor of the check without good reason, can cause the depositor not a little embarrassment if not also financial loss and perhaps even civil and criminal litigation.

A: Unless otherwise prescribed by the Monetary Board, the total amount of loans, credit accommodations and guarantees that may be extended by a bank to a single borrower shall not exceed 25% of the net worth of such bank. NOTE: The amount may be increased by an additional 10% of the bank’s net worth provided that the additional liabilities are adequately secured by documents of title covering readily marketable and nonperishable goods. Q: What is the purpose of the rule? A: To diversify the bank’s loan portfolio. Q: Let us say the bank has 10 Billion, can the bank lend the entire 10 Billion to Henry Sy? A: No, because the law provides for a single borrower’s limit. There is a maximum amount of loan a bank may grant to 1 borrower. That is not to exceed 25% of the bank’s net worth NOTE: Branches from part of the Bank. It has no separate legal personality from the bank.

Loans against real estate

Stipulation of interest NOTE: Circular 905 suspended the Usury Law, but it has not been repealed. Circular 905 lifted the ceiling on the interest rate. The bank and its depositors are therefore free to stipulate on the rate of interest for loans. Nevertheless, if the interest is unconscionable, it may be nullified on the grounds of equity.

Q: What is the limitation regarding loans against real estate? A: Except as the Monetary Board may otherwise prescribe, loans and credit accommodations against real estate shall not exceed 75% of the appraised value of the respective real estate security plus 60% of the appraised value of the insured improvements Loans against personal property

Limitations with respect to bank’s loan functions Q: What are the limitations imposed upon the banks with respect to its loan function? A: 1. 2. 3. 4.

Single borrower’s limit Loans against real estate Loans against personal property DOSRI regulation Single borrower’s limit

Q: Discuss the single- borrower’s limit?

Q: What is the limitation regarding loans against personal property? A: Loans on the security of chattels and intangible properties shall not exceed 75% of the appraised value of the security. DOSRI regulation Q: State the so- called “Dorsi Regulation.” A: No director or officer of any bank shall, directly or indirectly, for himself, or as the representative agent of 44 UNIVERSITY OF SANTO TOMAS


others: a. b. c. d. e. f.

borrow from such bank nor shall become a guarantor, indorser surety for loans from such bank to others or in any be an obligor or incur any contractual liability to the bank

Except with the written approval of at least majority of all the directors of the bank excluding the director concerned. The required approval shall be entered upon the records of the bank and a copy of such entry shall be submitted forthwith to the appropriate supervising and examining department of BSP.

2. 3. 4. 5.

Parents-in-law Children Children-in-law Spouse

NOTE: Common-law or illegitimate spouse is not included Requirements under the DOSRI Accounts Q: In case of DOSRI accounts, what are the requirements that must be complied with? A: 1.

The outstanding loans, credit accommodations and guarantees which a bank may extend to the DOSRI shall be limited to an amount equivalent to their respective unencumbered deposits and book value of their pre-paid contribution to the bank. Q: What are excluded from the limits?

Procedural requirements ‐ a.

b. c.

Loan must be approved by the majority of all the directors not including the director concerned (not merely majority of the quorum) CB approval is not necessary; however, there is a need to inform them prior to the transaction. Loan must be entered in the books of the corporation. (Sec. 36)

A: Non-risk loans such as: 2. 1. 2. 3. 4.

5.

Loans secured by obligations of the Bangko Sentral ng Pilipinas or the Philippine Government Loans fully guaranteed by the Gov ernment Loans covered by assignment of deposits maintained in the lending bank and held in the Philippines Loans, credit accommodations and acceptances under letters of credit to the extent covered by margin deposits Other loans or credit accommodations which the MB may specify as non‐risk items.

Q: Who are covered by the DOSRI Regulation?

Substantive requirement or ceiling requirement ‐ Loan must not exceed the paid in contribution and unencumbered deposits. (Not to exceed 15% of the portfolio or 100% of the net worth, whichever is lower.) (Sec. 36 [4])

Q: What is the effect of non‐compliance with the foregoing requirements?

A: Violation of DOSRI is a crime and carries with it penal sanction. Q: What are the transactions covered by the DOSRI regulation?

A: a.

b. c. d.

Director –those who are directly elected by the stockholders including those who represent themselves as director Officer –including those who advertises themselves Stockholder, which should at least 1% (if below 1% ‐ not anymore covered) Related Interests , such as DOS’s spouses, their relatives within the first degree whether by consanguinity or affinity, partnership whereby DOS is a partner or a corporation where DOS owns at least 20%

A: The transactions covered are loan and credit accommodation. Not being a loan, the ceiling will not apply to lease and sale. However, it should still comply with the procedural requirement. NOTE: Each and every requirement constitutes a separate violation or offense. Ex: no board approval

Q: What is the effect of the non-comppliance with the requirements such as the single borrowers limit with regard the loan?

Q: Who are included under the first degree? A: 1.

Parents

A: The same is valid without prejudice to criminal prosecution. In the case of Republic v. Sandiganbayan, Cojuangco (12 April 2011, G.R. No. 166859) , the Supreme Court held that the loans, assuming that they were of a DOSRI 45 UNIVERSITY OF SANTO TOMAS


nature or without the benefit of the required approvals or in excess of the Single Borrower’s Limit, would not be void for that reason. Instead, the bank or the officers responsible for the approval and grant of the DOSRI loan would be subject only to sanctions under the law.

NOTE: Despite such pronouncement, the crime has already prescribed. Violation of special penal laws has a prescriptive period of 10 years. Q : What is the arms‐length rule?

A: It provides that any dealings of a bank with any of its DOSRI shall be upon terms not less favorable to the bank than those offered to others. NOTE: The arms-length rule is the basis. Loans of directors, etc. should be beyond question. They should be above board.

ii. or by Foreigners (as in foreign banks) b. partnership

NOTE: The new law allows any natural person to own up to 40% of the capital stocks of a bank . Q: Can one group of persons or an entire family, under the new law, own the entire bank? A: Yes, for as long as not one of them own more than 40% (maximum) of the capital shares/stock of the Bank. Q: What about a foreigner? Is there a limit on the number of share a foreigner can own in bank? A: Only up to 40%. Foreigners can only own 40% of the bank. This is because a bank is a “nationalized activity.” Q: What does NATIONALIZED ACTIVITY mean?

Penalties for violation of the limitations Q: What are the penalties for the violations? A: 1. 2.

3. 4. 5.

Fines in amounts as the MB may determine but not exceed P30,000 a day for each violation Suspension of privileges: a. Quasi-banking function b. Clearing operation c. Foreign exchange d. Rediscounting facility with BSP Dissolution of the bank through a quo warranto proceeding If the offender is a director or officer, the MB may also remove or suspend such director or officer Penal sanction

A: It is an activity either wholly or partly reserved for Filipinos. NOTE: A bank is partly reserved for Filipinos, because Foreigners are allowed to be stock-holders of a bank but not to exceed 40% of the Bank’s capital stocks. Q: What about DOMESTIC CORPORATION? A: 40% Q: What about FOREIGN BANK/corporation owned by foreigners? A: 40% Q: How do you distinguish the 40% share ownership limit of a natural person who is a Filipino and 40% share limit of a foreigner?

Structure of bank A: Q: What is the nature of a bank?

FILIPINO Individual

A: It is only organized as a stock corporation. They cannot be organized as a non-stock corporation, because a non-stock is not organized for profit.

FOREIGNER Aggregate which means that shares held by foreigners and corporations owned by foreigners shall not exceed 40% of the bank’s capital stocks.

Q: What are the KINDS OF SHARE-HOLDERS/stock-holders? 1.

Natural persons a. Filipino b. Foreigner

2.

Juridical persons a. corporation or i. may be owned by a Filipino (domestic corporations)

So foreign held stocks whether owned by natural persons or corporation cannot exceed 40% of the bank.

Q: What about domestic corporations? A:



GR: A corporation may only own 40% of the bank XPNS: 1.

2.

3.

In case of wholly owned thrift bank subsidiary of a universal bank – bank – This This is because a universal bank can own up to 100% of a thrift bank If the shares of a corporation are listed in the stock exchange - it can own up to 60% of the bank. This privilege can be exercised only once. In other words a corporation whose shares are listed can own 60% of 1 bank only. As to the other banks the maximum is still 40%. If the corporation is in existence for 10 years it can own up to 60% of the bank. This privilege can only exercised once

examination over bank and non‐bank financial institutions performing quasi‐banking functions, including savings and loan associations.

Q: Does it enjoy fiscal and administrative authority? A: Yes. NOTE: Amando M. Tetangco, Jr. assumed office as Governor of the Bangko Sentral ng Pilipinas in July 2005. Q: What are the objectives of BSP? 1. 2.

Q: How many directors are allowed for a bank? A: Not less than 5 not more than 15 (min of 5, maximum of 15) and 2 of whom must be independent directors.

3.

Q: Who are INDEPENDENT DIRECTORS?

4.

It shall provide policy directions in the areas if money, banking and credit It shall have supervision over banks and exercise regulatory powers over finance companies and nonbank financial institutions performing quasi-banking functions It is mandated to maintain price stability conducive to a balance and sustainable growth of the economy It shall promote and maintain monetary stability and the convertability of the peso

A: Directors not part of management Monetary Board Q: Is there an EXCEPTION? (allowable directors) Q: What is the Monetary Board? A: In case of MERGER or CONSOLIDATION law allows 21 directors. Q: Can you have foreigners as officer of a Bank? Can you appoint foreign officers in your Bank? A: No. Under the Anti-Dummy Law, foreigners cannot be appointed to any executive possession of any corporation engaged in nationalized activity. Since a bank is nationalized you cannot have foreigner occupying executive positions in a bank.

A: The powers and function of Bangko Sentral are exercised by its Monetary Board, which has seven members. Q: Who are the members of the Monetary Board? A: Chairman Members

You can only appoint them as consultants, advisers but they cannot occupy executive positions.

Amando M. Tetangco, Jr. Cesar V. Purisima Alfredo C. Antonio Ignacio R. Bunye Peter B. Favila Felipe M. Medalla Armando L. Suratos

Bangko Sentral ng Pilipinas Legal tender Q: Who has supervisory power over the banks? Q: What is Legal Tender? A: 1. 2.

Bangko Sentral ng Pilipinas (for ultra vires act) Securities and Exchange Commission (for banking functions)

A: All notes and coins issued by the Bangko Sentral are fully guaranteed by the Republic and shall be legal tender in the Philippines for all debts, both public and private (Sec. 52)

Q: What is Bangko Sentral ng Pilipinas (BSP)?

Q: What is the legal tender power of coins?

A: The state’s central monetary authority; it is the government agency charged with the responsibility of administering the monetary, banking and credit system of the country and is granted the power of supervision and

A: 1.

1‐Peso, 5‐Peso and 10‐Peso coins: In amounts not exceeding P1,000.00



2.

.25 centavo coin or less: In amounts not exceeding P100.00 (Circular No. 537, 2006)

Q: What are the rules on BSP’s Authority to replace legal tender?

Q: What are the assets of the banks? A: 1. 2. 3. 4.

A: 1.

2.

3.

Notes and coins called in for replacement shall remain legal tender for a period of one year from the date of call. After that period, they shall cease to be legal tender during the following year or for such longer period as MB may determine. After the expiration of this latter period, the notes and coins which have not been exchanged shall cease to be a liability of BSP and shall be demonetized.

Cash Properties (real or personal) Receivables Collectibles

Q: What are the liabilities? A: 1. 2. 3. 4.

Deposits Deposit Substitutes Standing Letter of Credits Obligations Due to Credits

Q: What are the powers of a conservator? A:

REMEDIES OF BSP IN CASE OF BANKS IN DISTRESS

1.

Q: What are the remedies of the Bangko Sentral ng Pilipinas in case of banks in distress?

2. 3. 4.

A: Place the bank in: 1. Conservatorship 2. Receivership 3. Closure of the bank Conservatorship

To take charge of the assets, liabilities, and the management thereof Recognize the management collect all monies and debts due said bank Exercise all powers necessary to restore its viability with the power to overrule or revoke the actions of the previous management and board of directors of the bank or quasi‐bank

Q: Can the power to overrule or revoke the actions of the previous management and board of directors extend to perfected transactions?

Q: What is conservatorship? A: Whenever on the basis of the report of appropriate supervising and examining examining department, the Monetary Board finds that a bank or quasi-bank is in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to protect its depositors and creditors, the Monetary Board may appoint a conservator to take charge of the assets, liabilities and management thereof.

A: Such powers cannot extend to post facto repudiation of perfected transactions. Thus, the law merely gives contracts that are deemed to be defective‐ void, voidable, unenforceable or rescissible. Hence, the conservator merely takes the place of the bank’s board. 5. To bring court actions to assail or repudiate contracts entered into by the bank.

Q: Who is a conservator?

Q: When is conservatorship terminated?

A: One appointed if the bank is in the state of illiquidity or the bank fails or refuses to maintain a state of liquidity adequate to protect its depositors and creditors. The bank still has more assets than its liabilities but its assets are not liquid or not in cash thus it cannot pay its obligation when it falls due. The bank, not the Central Bank, pays for fees.

A:

Q: What do you mean by “illiquidity”? A: The bank still has more assets than its liabilities but its assets are not liquid or not in cash thus it cannot pay its obligation when it falls due.

1.

2.

When Monetary Board is satisfied that the institution can continue to operate on its own and the conservatorship is no longer necessary. When the Monetary Board, on the basis of the report of the conservator or of its own findings, determine that the continuance in business of the institution would involve probable losses to its depositors or creditors, the bank will go under receivership.



Receivership Q: What is receivership? A: The Monetary Board may appoint a receiver if the MB finds that a bank or quasi-bank: a. is unable to pay its liabilities as they come due in the ordinary course of business provided that this sahll not include inability to pay caused by extra-ordinary demands induced by financial panic in the banking community b. has insufficient realizable assets, as determined by the BSP, to meet its liabilities; or c. cannot continue in business without involving probable loss to its depositors and creditors; or d. has willfully violated a cease and desist order that has become final involving transactions which amount to fraud or dissipation of bank assets, the Monetary Board may summarily and without need for prior hearing forbid the institution from doing business in the Philippines and designate the PDIC as the receiver of the bank Q: Who is a receiver? A: One appointed if bank is already insolvent which means that its liabilities are greater than its assets. Q: Is the receiver authorized to transact business in connection with the bank’s assets and property?

Q: Does the filing of an intra-corporate case before the RTC and a complaint with the BSP (to compel a bank to disclose its stockholdings) innvoking BSP’s superviory powers over banking corporations amount to judicial proceeding and thus, constitute forum shopping? A: No, it does not constitute judicial proceeding. Much more, it does not constitute forum shopping. The 2 proceedings are of different relief. The complaint filed with the BSP was an invocation of its supervisory powers over banking operations which does not amount to a judicial proceeding (Suan v. Gonzales, 518 SCRA 82, 2007).

Q: What are the similarities between conservatorship and receivership? A: CONSERVATORSHIP RECEIVERSHIP 1. Both can only perform acts of administration and not acts of dominion. 2. While they have the power to revoke the actions of the previous management and the Board of Directors, they cannot invoke a valid contract. 3. Neither can approve an option to purchase real property Q: Do conservators or receivers have powers of dominion? A: No, they only have acts of administration, they cannot sell properties of banks, they cannot approved option to purchase properties, just purely acts of administration.

A: No, the receiver only has authority to administer the same for the benefit of its creditors. NOTE: Once the bank is placed under receivership, its officers can no longer authorized to transact business in connection with the bank’s assets and property. Q: Can the court appoint a receiver for a bank? A: No. The power belongs to the BSP. Q: Should the issue of whether or not the Monetary Board’s resolution is arbitrary be only raised in a separate action?

A: No. While resolutions of the Monetary Board forbidding a bank to do business on account of a condition of insolvency and appointing a receiver to take charge of the bank’s assets or determining whether the bank may be rehabilitated or should be liquidated a re by law “final and executory.” However, they can be set aside by the court on one specific ground ‐ if the action is plainly arbitrary and made in bad faith. Such contention can be asserted as an affirmative defense of a counterclaim in the proceeding for assistance in liquidation.

Closure Q: Can the BSP close a bank without prior hearing? A: Yes, because if prior hearing is required then bank run will be the order of the day. The power of BSP to close a bank is a valid exercise of police power. If there is showing of bad faith or grave abuse of discretion, it can be set aside and subject to judicial scrutiny. Q: Can BSP close a bank on the strength of a report by the supervising and examining department without complete notice of such bank? A: Yes CLOSE NOW‐HEAR LATER DOCTRINE Q: What is the close now‐hear later doctrine ?

A: The law does not contemplate prior notice and hearing before the bank may be directed to stop operations and placed under receivership. The purpose is to prevent unwarranted dissipation of the bank’s assets and as a valid



exercise of police power to protect the depositors, creditors, stockholders and the general public.

Promissory estoppel Q: What is the rule of promissory estoppel? A: When the Central Bank made express representations that it would support the bank and avoid its liquidation if its majority stockholders would execute a voting trust agreement turning over the management of the bank to the CB or its nominees and mortgage or assign their properties to CB to cover the overdraft balance of the bank, the CB may not thereafter renege on its representation and liquidate the bank after the majority stockholders of the bank complied with the conditions and parted with value to the profit of CB, which thus acquired additional security for its own advances to the detriment of the bank’s stock holders, depositors and other creditors under the rule of promissory estoppel (Ramos v. Central Bank of the Philippines, 41 SCRA 565, 1971).

Valid exercise of police power Q: Can the closure and liquidation of a bank, which is considered an exercise of police power, be the subject of judicial inquiry? A: Yes. While the closure and liquidation of a bank may be considered an exercise of police power, the validity of such exercise of police power is subject to judicial inquiry and could be set aside if it is either capricious, discriminatory, whimsical, arbitrary, unjust or a denial or due process and equal protection clauses of the Constitution Q: Upon maturity of the time deposit, the bank failed to remit. By reason of punitive action taken by Central Bank, the bank has been prevented from performing banking operations. Is the bank still obligated to pay the time deposits despite the fact that its operations were suspended by the Central Bank?

3.

Thru a petition for certiorari on the ground that the action taken by the BSP was in excess of jurisdiction or with grave abuse of discretion as to amount to lack of jurisdiction

Q: Should the issue of whether or not the MB’s resolution is arbitrary be only raised in a separate action?

A: No. While the resolutions of the MB forbidding a bank to do business on account of a condition of insolvency and appointing a receiver to take charge of the bank’s assets or determining whether the bank may be rehabilitated or should be liquidated by law “final and executory.” However, they can be set aside by the ground if the action is plainly arbitrary and made in good faith. Such actions can be asserted as an affirmative defense of a counterclaim in the proceeding for assistance in liquidation. NOTE: The Court perceives no reason whatever why a banking institution’s claim that a resolution of the Monetary Board under Section 29 of the Central Bank Act should be set aside as plainly arbitrary and made in bad faith cannot be asserted as an affirmative defense or a counterclaim in the proceeding for assistance in liquidation, but only as a cause of action in a separate and distinct action. There is no provision of law which expressly or even by implication imposes the requirement for a separate proceeding exclusively occupied with adjudicating this issue. Moreover, to declare the issue as beyond the scope of matters cognizable in a proceeding for assistance in liquidation would be to engender that multiplicity of proceedings which the law abhors ( Salud v. Central Bank, G.R. No. L-17620, 1986). Q: Can a bank be held liable to pay interest on deposit once it closed and ceased operations? A: Generally, no. NOTES

A: The suspension of operations of a bank cannot excuse non‐compliance with the obligation to remit the time deposits of depositors which matured before the bank’s closure. Assailing the order of conservatoship, receivership or closure Q: How can the order of conservatoship, receivership or closure be assailed? A: 1. 2.

By the stockholders representing at least majority of the outstanding capital stock Within 10 days from receipt by the board of directors of the order 50 UNIVERSITY OF SANTO TOMAS


CONSERVATORSHIP

RECEIVERSHIP

LIQUIDATION

Grounds

1. 2.

Continuing inability Unwilling‐ness to maintain condition of liquidity

1.

2. 3. 4. 5. 6.

1. 2.

Juridical personality is retained. Perfected transactions cannot be repudiated;

1. 2. 3.

Inability to pay liabilities as they fall due 2. e.g: bank run, rumors, etc. Assets are less than its liabilities Cannot continue business without causing damage; Violation of a cease and desist “Bank holiday” for more than 30 days. Effects

1. Insolvency Bank cannot be rehabilitated

Juridical personality is retained Suspension of operation /stoppage of business Assets deemed in custodia legis

1. Juridical personality is retained. Perfected transactions cannot repudiated;

be

Liquidation Claims against the insolvent bank Q: When can there be liquidation? Q: Where should the claims against insolvent bank be filed? A: If the bank cannot be restored to its financial health upon the recommendation of the conservator or receiver or head of the supervising and examining department, BSP shall file the petition with the RTC for assistance in liquidation. NOTE: Once the liquidation proceedings have been initiated, the majority stockholders of the bank can no longer file a separate action or petition to assail the order of closure. Instead, issues on validity of closure should be raised as affirmative defenses in the liquidation proceeding. This is necessary to prevent multiplicity of suits or conflicting resolutions. Lack of tax clearance; effect Q: Can the liquidation of bank be carried out despite lack of tax clearance? A: GR: Dissolution of a CORPORATION cannot be approved unless there is payment of taxes XPN: Closure and liquidation of banks which is governed by a special law. The authority of the BSP to close cannot be impaired. NOTEl Unlike in the voluntary dissolution of a corporation under the Corporation Code. There are substantial differences in the procedure for involuntary dissolution and liquidation of a corporation under the Corporation Code and that of a bank under the New Central Bank Act so that the requirements in one cannot simply be imposed in the other (In Re: Petition for Assistance in the Liquidation in the Rural Bank of Bokod (Benguet), PDIC v. Bureau of Internal Revenue, 511 SCRA 123, 2006).

A: All claims against the insolvent bank should be filed in the liquidation proceeding. It is not necessary that a claim be initially disputed in a court or agency before it is filed with the liquidation court ( Ong v. CA, 253 SCRA 105, 1996). Q: What is the exception to this rule? A: It does not apply to a petition for the issuance of a writ of possession for foreclosed property filed by the bank. Q: All claims against the insolvent bank should be filed in the liquidation proceeding. What is the purpose of such rule? A: The requirement that all claims against the bank be pursued in the liquidation proceedings is intended: a. to prevent multiplicity of actions against the insolvent bank, and; b. designed to establish due process and orderliness in the liquidation bank Q: What is the nature of a petition for the Issuance of a Writ of Possession? A: It is not in the nature of a disputed claim against the bank. On the contrary, it is an action instituted by the bank itself for the preservation of its asset and protection of its property. Bank deposits, not preferred credits Q: What is the nature of bank deposits? A: GR: Not preferred credits 51 UNIVERSITY OF SANTO TOMAS


XPN: When the deoposits are covered by a cashier’s check purchased from the bank when the bank officers knew or ought to have known that the bank is insolvent. NOTE: In a situation involving the element of fraud, where a cashier’s check is purchased from a bank at a time when it is insolvent, as its officers know or are bound to know by the exercise of reasonable diligence, the purchase is entitled to preference in the assets of the bank on its liquidation (Miranda v. PDIC, 501 SCRA 288, 2006) .

Prohibited acts Q: What are the prohibited acts? A: 1.

2. 3.

Effect of final judgment against the bank Q: What is the effect of final judgment against the bank? A: Any final judgment against the bank which has been ordered or closed should be stayed as to execute the judgment would unduly deplete the assets of the bank to the prejudice of other creditors. After the Monetary Board has declared that a bank is insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets for the equal benefit of all the creditors, including depositors. The assets of the insolvent banking institution are held in trust for the equal benefit of all creditors, and after its insolvency, one cannot obtain an advantage or a preference over another by an attachment, execution or ot herwise. Q: Will the suspension of the operations of a bank excuse non-compliance with its obligation to remit the deposit of depositors?

It shall be unlawful for any official or employee of a bank to disclose to any person other than those excepted by law any information concerning deposit Non-bank official or employee is not covered by the prohibition Disclosure by a bank official or employee of information about a bank deposit in favor of a coemployee in the course of the performance of his duties is not covered by the prohibition

Q: What are the kinds of deposits covered? A: 1.

2.

3.

All deposits of whatever nature with banks or banking institutions found in the Philippines; or Investments in bonds issued by the Philippine government, its branches, and institutions Trust funds and any sum of money invested in the bank which the bank may use for loans and similar transaction are now included in the term “deposits” Deposits are thus no longer limited to those governed by law on loans giving rise to creditordebtor relationship

Q: What do you mean by Bank Deposits in this context?

A: No, the suspension of operations of a bank cannot excuse non-compliance with the obligation to remit the time deposits of depositors which matured before the bank’s closure (Overseas Bank of Manila v. CA, 172 SCRA 521, 1989).

A: This means funds given to the bank giving to a creditordebtor relationship.

Q: What is the effect of the closure of a bank as regards the collection and foreclosure of mortgages?

A:

A: Even if the bank is questioning the vlidity of its closure, during the pendency of the case the liquidator can continue prosecution suits for collection and foreclosure of mortgages, as they are acts done in the usual course of administration of the bank.

Q: What are the requisites?

1. 2. 3. 4.

5.

LAW ON SECRECY OF BANK DEPOSITS (R.A. 1405) Q: What is the purpose? A: 1. 2.

To encourage deposit in banking institutions; and To discourage private hoarding so that banks may lend such funds and assist in the economic development of the country.

Funds given to the banks Ownership over the funds is transferred to the ba nk The bank is free to u se the funds as he pleases The bank has the obligation to return the money upon demand by the depositor under Art 1980 Civil Code. Bank Deposits shall be governed by the Law on Loans (Art 1980 Civil Code).

Q: What does investment in government securities mean? A: Any investment in security issued or guaranteed by the government is covered. Government securities are Instruments issued or guaranteed by the government. Meaning the payment shall be made or guaranteed by the government.



Examples: Treasury Bills, Erap Bonds, Maharlika Bonds (during the FVR’s time), GSIS Civil Trade Treasury Bonds and any obligation of the government evidenced by a debt instrument is covered by 1405.

6.

Trust funds Q: Are trust funds covered by the term “deposit?”

A: Yes, the money deposited under the trust agreement is intended not merely to remain with the bank but to be invested by it elsewhere. To hold that this type of account is not protected by R.A. 1405 would encourage private hoarding of funds that could otherwise be invested by banks in other ventures, contrary to the policy behind the law. (Ejercito v. Sandiganbayan, G.R. No. 157294‐95, Nov. 30, 2006)

NOTE: Despite such pronouncement that trust funds are considered deposits, trust funds remain not covered by PDIC.

7.

who has filed an application for compromise of his tax liability by reason of financial incapacity to pay his tax liability. Under the Unclaimed Balances Law , the bank may disclose to the National Treasurer information concerning dormant deposits for the purpose of initiating escheat proceedings In case the law is repealed, superseded or modified by any law to the contrary.

Q: Let say the Senate Blue Ribbon Committee is conducting an investigation on the extent of jueteng activities in Pampanga. In aid of legislation, the Senate Blue Ribbon Committee invited persons suspected to be involved in jueteng and subpoenad various banks in Metro Manila, directing such banks to produce documents or records of the person suspected to be involved in jueteng activities. Supposedly, it is in aid of legislation, can the bank comply without violating Republic Act 1405 (Law on Secrecy of Bank Deposits)?

Exceptions Q: When may deposits be disclosed, examined or looked into? A: 1. 2. 3.

4.

5.

Written permission of the depositor Impeachment Order of competent court in: a. Bribery or dereliction of duty of public officials b. Subject matter of litigation is the money deposited c. Unexplained wealth (plunder is akin to unexplained wealth) d. Violation of Anti-Graft and Corrupt Practices Act e. Prima facie violation of the Anti-Money Laundering Law NOTE: Disclousre can only be made to the AntiMoney Laundering Council. Bank inquiry order is not necessary if the predicate crime is: i. kidnapping, ii. hijacking iii. arson iv. murder v. violation of dangerous drugs act f. violation of the Human Security Act g. garnishment of bank deposits Upon order of the Commissioner of Internal Revenue in respect of the bank deposits of a decedent for the purpose of determining such decedent’s gross estate. NOTE: The bank cannot disclose to the heirs of the deceased depositor but only to the BIR Upon the order of the Commissioner of Internal Revenue in respect of bank deposits of a taxpayer

A: No, because the Senate Blue Ribbon Committee is not a court, it may be a very powerful committee but the fact remain that it is not a court. Q: The Fiscal is conducting an investigation on Violation of B.P 22, to complete the investigation, the Fiscal issued a subpoena to the bank where the check was drawn against to produce related documents and records of the respondent in a criminal case, can the Bank comply without violating the law? A: No, because the Fiscal is not a court, it has to be a court order. Q: Can the bank disclose the name of the depositor? Is it protected by RA 1405? A: Still debatable. According to Dean Divina, this should be covered because of Section 3 of RA 1405? Section 3. It shall be unlawful for any official or employee of a banking institution to disclose to any person other than those mentioned in Section two hereof any information concerning said deposits.

Money deposited as the subject matter of litigation Q: A one transfer for $1000, and ended up being remitted to the account paying in the Philippines for $1000,000. So the teller must have overlooked, she misread the instrument, so the account of that the payee was credited was $1000,000. He consulted his lawyer and such lawyer advised to withdraw, spend such money. The payee withdrew the funds, and he deposited such withdrawn amounts to various banks. Thereafter, the Bank discovered the error and filed an action for the reimbursement or return of the money. They ask the court to subpoena ad tefistificandum to 53 UNIVERSITY OF SANTO TOMAS


compel the bank managers who have certain accounts suspected to be depository of the funds. When one of the Bank managers is suppose to testify, he was opposed by the lawyer of the payee arguing such testimony by invoking Republic Act 1405. Does the testimony violate Republic Act 1405? A: No, because the subject matter of litigation is the money deposited, the subpoena ad tefistificandum is a court order directing the person involved to testify. Being a court order and being the subject matter of litigation of the money deposited falls within the exception. Therefore the bank manager can testify without violating the law. Q: A issued a check for Php1000,000, it was drawn against Allied Bank and such check was deposited with Union Bank. Union Bank undecoded the charged slip. Union Bank only recovers Php1000 from Allied Bank when it should have recovered Php1000,000 for the amount for which the account of A was debited. After 1 year, it was discovered, so Union Bank filed a petition to examine the account of A. Allied Bank opposed the action of the ground that it will violate the right of A under Republic act 1405, which the Union Bank counter-argue that it will not because the subject matter of litigation is the account where the money is deposited. Is the money found in the account of A is the subject matter of the litigation?

allowed the examination under the exception on the accounts, documents or records. The SC relied on the Anti-graft and Corrupt Practices Act and unexplained wealth law, in both laws it provided that Bank deposits shall be taken into account in the enforcement of these laws. So, when it comes to anti-graft and corrupt practices act, bribery or dereliction of duty and the unexplained wealth law, even a prosecutor may have access to bank deposits. Ombudsman’s Authority

Q: What are the requisites before the Ombudsman may examine deposits? A: 1.

There is a pending case before court of competent jurisdiction 2. The account must be clearly identified 3. There is notice upon the account holder and bank personnel of their presence during inspection 4. The same must be limited to the a ccount

NOTE: The inspection must cover only the account identified in the pending case (Marquez v. Desierto, G.R. No. 138569, Sept. 11, 2003).

A: No, because the cause of action of the Union bank is to recover the difference between Php1000,000 and Php1000, it paid Php1000,000 to payee depositor but only got P1000. Union Bank is a collecting Bank, it collects the amount covered by a check from the drawee bank so it can credit the account of the depositor. So the cause of action of the Union bank is to recover the difference between Php1000,000 and Php1000, and not necessarily the funds in the account of A, so it is any money that falls under the difference between Php1000,000 and Php1000. The right to privacy is a right guaranteed by the constitution and if it examines the account of the depositor which do not fall under the exception violates such right to privacy.

Q: Can a bank be compelled to disclose the records of the accounts of a depositor under the investigation for unexplained wealth?

Bribery, dereliction of duty, prosecution for unexplained wealth, prosecution for Anti-graft and Corrupt Practices Act

(PNB v. Gancayco, G.R. No. L‐18343, Sept. 30, 1965) .

A: Since cases of unexplained wealth are similar to cases of bribery, dereliction of duty, no reason is seen why it cannot be excepted from the rule making bank deposits confidential. In this connection, inquiry into illegally acquired property in anti‐graft cases extends to cases where such property is concealed by being held or recorded in the name of other persons. This is also because the Anti‐Graft and Corrupt Practices Act, bank deposits shall be taken into consideration in determining whether or not a public officer has acquired property manifestly out of proportion with his lawful income.

Garnishment Q: A special prosecutor was conducting an investigation for violation of unexplained wealth law involving a public official suspected to have an ill-gotten wealth. In the course of the investigation, the special prosecutor issued a subpoena were such public official maintained an account. The Bank opposed citing the R.A 1405. Decide. A: The SC said that when it comes to investigation of unexplained wealth under anti-graft and corrupt practices act, the prosecutor may have access to bank deposits. Although a special prosecutor is not a court, but the SC

Q: Does garnishment of a bank deposit violate the law? A: No, the prohibition against examination does not preclude its being garnished for satisfaction of judgment. The disclosure is purely incidental to the execution process and it was not the intention of the legislature to place bank deposits beyond the reach of judgment creditor. Q: How about foreign currency deposits, can they be subject to garnishment?



A: GR: Foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever. ( Sec 8. R.A. 6426) XPN: The application of Section 8 of R.A. 6426 depends on the extent of its justice. The garnishment of a foreign currency deposit should be allowed to prevent injustice and for equitable grounds, otherwise, it would negate Article 10 of the New Civil Code which provides that “in case of doubt in the interpretation or application of laws, it is presumed that the lawmaking body intended right and justice to prevail

A: The exemption from garnishment of foreign currency deposits under R.A. 6426 cannot be invoked to escape liability for the damages to the victim. The garnishment of the transient foreigner’s foreign currency deposit should be allowed to prevent injustice and for equitable grounds. The law was enacted to encourage foreign currency deposit and not to benefit a wrongdoer (Salvacion vs. Central Bank of the Philippines, G.R. 94723, August 21, 1997) . RA 1405 AND RA 6426 COMPARED Q: What are the exceptions to the rule that foreign deposits are privilged and confidential? A:

Unlclaimed Deposits Law Q: Under the Unclaimed Balances Law, the bank may disclose to the National Treasurer information concerning dormant deposits for the purpose of initiating escheat proceedings. What is the exception? A: In case of “automatic roll-over clause.”

1. 2. 3.

4. 5. 6.

Q: What is an “auto matic roll-over clause”?

A: This refers to whether your term deposit will automatically roll over into a new fixed term once it reaches maturity. Before your account reaches maturity, you have to notify your institution of what you wish to do with your money, whether you decide to collect or transfer it to another term deposit.

7.

NOTE: Deposits with “Automatic roll-over clause” are not subject to prescription. They cannot be escheated .

9.

Foreign currency deposits not covered Q: Are foreign currency deposits covered by the Secrecy in Bank Deposits (R.A. 1405)? A: GR: No. Foreign currency deposits are covered by R.A. 6426 otherwise known as the Foreign Currency Act. Under the same law, all authorized foreign currency deposits are considered of an absolutely confidential nature and, except upon the written permission of the depositors , in no instance shall be examined, inquired or looked into by any person, government official, bureau or office whether judicial or administrative private. Q: Can the foreign currency deposit of a transient foreigner who illegally detained and raped a minor Filipina, be garnished to satisfy the award for damages to the victim?

8.

Written permission of the depositor Impeachment Court order a. Violation of the Anti-Money Laundering Law b. Human Security Equittable consideration One invoking is not the owner or a co-owner The BIR under the tax Code may inquire into the deposits for the purpose of computing the tax due of the estate of a deceased depositor. Because foreign currency are not exempt for estate tax The BIR under the Tax code may inquire into the bank deposits of a taxpayer who has filed an application for compromise of his tax liability on the ground of financial incapacity The PCGG under its mandate may have access to bank deposit for the purpose of recovering illegally acquired funds In case a law is passed repealing or amending RA 6426

Q: How about escheat proceedinggs? A: According to the Secretary of Justice, foreign currency deposits are exempt from escheat proceedings because escheat is akin to garnishment, since foreign currency deposits are exempt from garnishment and escheat is a form or specie of garnishment, therefore foreign currency deposits are exempt from escheat proceedings. Being exempt from escheat proceedings, the bank has no authority to disclose to the National Treasurer any information about foreign currency dormant accounts. Filing of the comlaint for violation of RA 1405 does not toll the running of the prescriptive period to file the appropriate complaint for violation of R.A. 6426 Q: Does the filing of the comlaint for violation of RA 1405 toll the running of the prescriptive period to file the appropriate complaint for violation of R.A. 6426?



A: No, it did not toll the running of the prescriptive period to file the appropriate complaint for violation of R.A. 6426

deposit box will not put a tag on the contents of Safety deposit box way beyond human imagination.

(Intengan v. CA, 377 SCRA 63, 2002).

GENERAL BANKING LAW: Provisions of secrecy NOTE: General Banking Law prohibits disclosure of any information among funds other than deposits as well as properties in the bank’s possession belonging in the private entity. It covers funds other than deposits. Prior to the case of Ejercito vs Sandiganbayan , trust funds are confidential not because of RA 705 but because of RA 8791, but now TRUST FUNDS ARE COVERED BY RA 1405 hence funds other than deposits for as long as the banks may use the same for loans or similar transactions.

Q: Can the bank disclose the whereabouts of a client, let say that a bank has 2 clients and one is indebted to the other, can the bank upon the request of the creditor disclose information on the whereabouts of the debtor? A: This information is not covered by 1405, 6426 or 8791 because it is not funds, but it is covered by the Constitution the right to privacy. NOTE: Bottom line is that “whatever information we give to the bank is confidential or privilege and can only be disclose in those cases provided by law”

Q: What law governs trust funds? A: They are now governed by 2 laws: 1. RA 8791 and 2. RA 1405. The Supreme Court did not go beyond explaining what exceptions will apply because under RA 8791 there are 2 exceptions (written permission and court order). There are funds which are not covered by RA 14 05, these funds that the bank cannot be use for loans and other similar transactions.

ANTI-MONEY LAUNDERING LAW (R.A. 9160, a amended) Q: What is the policy of the law? A: To protect and preserve the integrity and confidentiality of bank accounts and to ensure that the Philippines shall not be used as a money laundering site for the proceeds of any unlawful activity. Q: What is money laundering?

Q: When are funds considered as deposited? A: Funds which are deposited or invested with the bank which the bank can use for loans and similar transactions” if the bank can use it for loans and similar transactions then it is not covered by RA 1405 but it is governed by RA 8791.

A: Money laundering is a crime whereby the proceeds of an unlawful activity as defined in the AMLA are transacted or attempted to be transacted to make them appear to have originated from legitimate sources. Anti-Money Laundering Council

Examples of these are funds obtained by the bank for “strict deposit” meaning for safe keeping. Since the bank cannot use these funds for loans, it is not covered by RA 1405 but they are covered by RA 8791.

NOTE: Whether 1405 or 8791 both laws say that it cannot be inquired or looked in to but the problem lies on which exception would apply. Q: Can the bank disclose information about the contents of the safety deposit box? A: No, because it will violate RA 8791. Q: What if the depositor did not pay rents on the safety deposit box? A: If the depositor is not paying rents, then the Bank will force open the safety deposit box. In case of force opening, the Bank will know the contents of the box, so every time the bank will force open the Box it engages with the services of the notary public to make sure that the owner of the safety

Q: What is the Anti-Money Laundering Council (AMLC) The government body tasked to carry out the implementation of the Anti-Money Laundering Law is the Anti-Money Laundering Council. It is authorized to impose administrative sanctions for the violation of the law, rules or regulations issued pursuant to the Anti-Money Laundering Law. It may freeze monetary instrument or property alleged to be the proceeds of unlawful activity. The AMLC shall apply for a freeze order with the Court of Appeals . Such order may be issued ex parte . It is also authorized to inquire into bank deposits or investments, regardless of currency but it needs a bank inquiry order . The AMLC shall apply for a bank inquiry order with any competent court. Such competent court is the Regional Trial Court . The bank inquiry order cannot be issued ex parte but under the recent law dated June 2012, bank inquiry order can now be issued ex parte. 56 UNIVERSITY OF SANTO TOMAS


Covered institutions

five hundred thousand pesos (P500,000) within one banking day.

Q: What are the covered institutions?

Suspicious transactions

A:

Q: What are suspicious transactions?

1. 2.

A: Suspicious transactions are transactions with covered institutions, regardless of the amounts involved, where any of the following circumstances exist:

Institutions supervised or regulated by the BSP Institutions supervised and regulated by the Insurance Commission; and 3. Entities dealing in currency, commodities, or financial derivatives based thereon valuable objects, cash substitutes, and other similar monetary or property supervised and regulated by the SEC. NOTE: (Enumeration under Golden Notes 2011) Banks Non‐banks Quasi‐banks Trust entities All other institutions, their subsidiaries and affiliates supervised or regulated by BSP 6. Insurance companies and all other institutions supervised and regulated by the Insurance Commission 7. Securities dealers, brokers, salesmen, investment houses and other similar entities managing securities or rendering services as investment agent, advisor, or consultant 8. Mutual funds, closed‐end investment companies, common trust funds, pre‐need companies and other similar entities 9. foreign exchange, corporations, money changers, money payments, remittance and transfer companies and other similar entities; and 10. Other entities administering or otherwise dealing in currency, commodities or financial derivatives based thereon, valuable objects, cash substitutes, and other similar monetary instruments or property supervised or regulated by SEC.

1. 2. 3.

1. 2. 3. 4. 5.

4.

5.

6.

7.

There is no underlying legal or trade obligation, purpose or economic justification The client is not properly identified The amount involved is not commensurate with the business or financial capacity of the client; Taking into account all known circumstances, it may be perceived that the client’s transaction is structured in order to avoid being the subject of reporting requirements under the AMLA; Any circumstances relating to the transaction which is observed to deviate from the profile of the client and/or the client’s past transactions with the covered institution; The transactions is in a way related to an unlawful activity or offense under the AMLA that is about to be, is being or has been com mitted; or Any transactions that is similar or analogous to any of the foregoing.

Q: What are the acts punishable under R.A. 9160? A: 1.

Knowingly transacting or attempting to transact any monetary instrument/property which represents, involves, or relates to, the proceeds of any unlawful activity (Action)

2.

Knowingly performing or failing to perform an act in relation to any monetary instrument/property involving the proceeds of any unlawful activity as a result of which he facilitated the offense of money laundering (Omission).

3.

Knowingly failing to disclose and file with the AMLC any monetary instrument/ property required to be disclosed and filed ( Failure to report) .

Q: What are the obligations of covered institutions? A: 1. 2. 3.

Customer identification Record keeping (records should be kept and safely stored for 5 years from the date of the transaction) Reporting of covered and suspicious transactions

Covered transactions Q: What is a covered transaction? A: A covered transaction in cash or other equivalent monetary instrument involving in a total amount in excess of

Safe Harbor Provision Q: What is the so- called “Safe harbor provision”? A: No administrative, criminal or civil proceedings shall lie against any person for having made a covered transaction report in the regular performance of his duties and in good faith, whether or not such reporting results in any criminal prosecution under the AMLA or any other Philippine law. 57 UNIVERSITY OF SANTO TOMAS


Prior to June 2012: Venue of action; Jurisdiction Q: Which court has jurisdiction for violations of the AMLA? A: 1. 2.

RTC-all cases of Anti-Money Laundering Sandiganbayan- those committed by public officers and private persons in conspiracy with them

Predicate crimes Q: What is the unlawful activity referred to in R.A. 9160? A: Unlawful activity is the offense which generates dirty money. It is commonly called the predicate crime refers to any act or omission or series or combination thereof involving or having relation to the following: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Kidnapping for ransom; Drug trafficking and related offenses; Graft and corrupt practices; Plunder; Robbery and extortion; Jueteng and Masiao; Piracy; Qualified theft; Swindling; Smuggling; Violations under the Electronic Commerce Act of 2000; 12. Hijacking, destructive arson and murder, including those perpetrated by terrorists against noncombatant persons and similar targets; 13. Fraudulent practices and other violations under the Securities Regulation Code of 2000; 14. Felonies or offenses of a similar nature that are punishable under the penal laws of other countries.

A: No. A bank inquiry order, unlike a freeze order cannot be issued unless notice is given to the owners of the account, allowing them the opportunity to contest the issuance of such order (Republic v. Eugenio, 545 SCRA 384, 2008). NOTE: Still, even if the bank inquiry order may be availed of without need of a pre-existing case under the AMLA, it does not follow that such order may be availed of ex parte. It is evident that Sec. 11 does not specifically authorize, as a general rule, the issuance ex parte of the bank inquiry order. Of course, Sec. 11 also allows the AMLC to inquire into bank accounts without having to obtain a judicial order in cases where there is probable cause that the deposits or investments are related to kidnapping for ransom, certain violations of the Comprehensive Dangerous Drugs Act of 2002, hijacking and other violations under R.A. No. 6235, destructive arson and murder. In the instances where a court order is required for the issuance of the bank inquiry order, nothing in Sec. 11 specifically authorizes that such court order may be issued ex parte. The necessary implication of this finding that Sec. 11 of the AMLA does not generally authorize the issuance ex parte of the bank inquiry order would be that such orders cannot be issued unless notice is given to the owners of the account, allowing them the to contest the issuance of the o rder. The court receiving the application for inquiry order cannot simply take the AMLC’s word that probable cause exists that the deposits or investments are related to an unlawful activity. It will have to exercise its own determinative function in order to be convinced of such fact. The account holder would be certainly capable of contesting such probable cause if given the opportunity to be apprised of the pending application to inquire into his account; hence a notice requirement would not be an empty spectacle (Republic v. Eugenio, et al. G.R. No. 174629, Feb. 14, 2008 ).

Bank inquiry Q: Is there a need for a pre-existing or pending case in court for violation of the Anti-Money Laundering Law before a bank inquiry order may be issued by a court? A: No. Q: Can a bank inquirty be availed of ex-parte? A: The AMLC is authorized to inquire into bank deposits or investments, regardless of currency but it needs a bank inquiry order . The AMLC shall apply for a bank inquiry order with any competent court. Such competent court is the Regional Trial Court . The bank inquiry order cannot be issued ex parte but under the recent law dated June 2012, bank inquiry order can now be issued ex parte.

Q: What are the exceptions to the rule that a court order is necessary before the AMLC can inquire into bank deposits? A: No court order is required in the following cases: 1. 2. 3. 4. 5. 6.

Kidnapping for ransom; Drug trafficking and related offenses; Hijacking; Destructive arson; Murder Those perpetrated by terrorists against combatant persons and similar targets.

non-

Freeze order Q: Which court has jurisdiction in the freezing of monetary instrument or property? 58 UNIVERSITY OF SANTO TOMAS


A: The Court of Appeals has the jurisdiction to freeze the account upon application ex parte by the AMLC and after determination that probable cause exists that any monetary instrument or property is in any way related to an unlawful activity. Note: The freeze order shall be for a period of 20 days unless extended by the court. BANK INQUIRY ORDER FREEZE ORDER The AMLC is authorized to The AMLC may freeze inquire into bank deposits or monetary instrument or investments, regardless of property alleged to be the currency but it needs a bank proceeds of unlawful activity . inquiry order . Jurisdiction Regional Trial Court Court of Appeals Issuance Under the recent law dated Can be issued ex parte June 2012, bank inquiry order can now be issued ex

Q: In disclosing Alvin's bank accounts to the AMLC, did the bank violate any law? A: No, the bank did not violate any law. The bank being specified as a "covered institution" under the Anti‐Money Laundering Law, is obliged to report to the AMLC covered and suspicious transactions, without thereby violating any law. This is one of the exceptions to the Secrecy of Bank Deposit Act.

TRUTH IN LENDING ACT (RA 3765) (TILA) Historical Background The Truth in Lending Law was pass to compliment the then USURY LAW. The USURY LAW is suspended (not repealed) as of 1982. The Central Bank (CB) lifted the ceiling on interest rate.

Q: When is an interest considered as usurious?

parte.

N/A

Duration The freeze order shall be for a period of 20 days unless extended by the court.

A: A rate of interest is USURIOUS if it in excess of the ceiling set forth by the Bangko Sentral ng Pilipinas (BSP). Circular 905

Q: Does the AMLC have the authority to inquire into bank deposits? A: Notwithstanding the provisions of R.A. 1405 (The Bank Secrecy Law), as amended; R.A. 6426, as amended; R.A. 8791 (General Banking Law of 2000), and other laws, the AMLA may inquire into or examine any particular deposit or investment with any banking institution or non-bank financial institution upon order of any competent court in cases of violation of AMLA when it has been established that there is probable cause that the deposits or investments involved are in any way related to an unlawful activity.

In 1982 CB issued Circular 905 lifting the ceiling on interest rate. There being no ceiling in interest rates then there is no usurious rate of interest.

Truth in Lending Law When the Truth in Lending Law was passed the Usury Law was still in place. Under said law the rate of interest is usurious if the interest is more than 12% for secured loans and more than 40% for unsecured loan (no collateral, no mortgages).

Q: Alvin is jobless but is reputed to be a jueteng operator. He has never been charged or convicted of any crime. He maintains several bank accounts amounting to P100 Million. AMLC charged Alvin with violation of the Anti‐Money Laundering Law. Can Alvin move to dismiss the case on the ground that he has no criminal record?

Many persons were found to circumvent the usury law by sticking to the ceiling but collecting other items not on their interest but other charges. Since they are not interest then they are not usurious but they jacked up the cost of credit. So this is why the Truth in Lending Law was passed – to compliment the Usury Law.

A: No. The contention of Alvin is not tenable because under AMLA, "money laundering crime" committed when the proceeds of an "unlawful activity," like jueteng operations, are made to appear as having originated from legitimate sources.

Purpose

The money laundering crime is separate from the unlawful activity of being a jueteng operator, and requires no previous conviction for the unlawful activity. (Sec. 3, AMLA)

Q: What is the purpose of Truth in Lending Act (TILA)? A: 1. 2.

To complement the Usury Law; To protect persons from a lack of awareness of the true cost of credit by assuring full disclosure of such 59 UNIVERSITY OF SANTO TOMAS


cost with a view of preventing the uninformed use of credit to the detriment of the national economy.

Q: What are the items required to be disclosed? A: Prior to the consummation fo a loan transaction, the bank, as creditor, is obliged to finish a client with a clear statement, in writing, setting forth, to the extent applicable and in accordance with the Rules and regulations prescribed by the Monetary Board of the CB, the ff. information: a. b. c. d.

e. f.

the cash price or delivered prie of the property or service to be acquired the amounts if any, to be credited as down payment and or trade-in the difference between the amounts set forth under clauses 1 and 2 the charges, individually itemmized which are to be paid by such person in connection with the transaction but which are not incident to the extension of c redit the finance charges expressed in terms of pesos and centavos the percentage charges bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation (the unpaid interest on the outstanding obligation)

Illustration: A wants to purchase a car on installment basis. The cost of the car is 3M. He made a down payment of P1M. The balance (P2M) is covered by a promissory note payable over 60 mos. (5 yrs to pay). The truth in lending law requires the creditor (the car company) to disclose to the borrower (the buyer to the car) the ff information:

1. 2.

3. 4.

Cost Price/Delivery Price - How much is the cost or value of the delivery of the car? P3M Amount of Down Payment – P1M; OR “Trade In” (if the borrower wants to trade his old car in exchange for a new car then the trade in value has to be indicated in the document) The Difference bet. 1 and 2 Charges not incident to the credit which must be itemized. Examples: handling fee, service fee, registration fee,

5.

The total amount Example: If the car has a value of 3M and down payment is 1M, how much is the amount to be financed? 2M. It is payable in 5 years, then 2M plus interest over 5 years. It has to be indicated.

Q: What if a promissory note grants the creditor the power to unilaterally fix the interest rate? A: That means the promissory note does not contain a clear statement in writing of finance charge. Such provision is illegal not only because it violates the provisions of the Civil Code on mutuality of contracts but also because it violates the Truth in Lending Act. Uncovered transactions Q: What transactions are not covered by TILA? A: The law does not apply to transaction on cash basis but only where there is a credit component (Dean Di vina). NOTE: It also does not apply to: 1. Those which do not involve the payment of any finance charges by the debtor; and 2. Where the debtor is the one specifying a definite and fixed set of credit terms such as bank deposits, insurance contracts, sale of bonds, etc. The TILA is also applicable only to a creditor as defined by law, a person engaged in the business of extending credit.

Q: You want to buy a DVD component. You went to SM Appliance Center. You got it and you got your credit card from your wallet, and then presented it to the sales lady. The sales lady swiped it into the machine. After 1 month you got a billing statement from your card company. It turns out that you have a revolving credit with the card company. You are allowed to pay 36 months with the card company 0 interests for 36 mos. So you are not forced to pay affront. You will pay on installment basis for 36 mos. 0 interest. Billing statement comes; it says “12% interest on the invoice charges and other fees or charges that the card company may determine from time to time.” Did SM Appliance Center Violated that Truth in Lend Law? A: No because the transaction between SM and the card holder is on cash basis. The installment basis is between the card holder and the card company. If there is anyone required to comply with the Truth in Lending Law it is the card company. The truth in lending law does not apply when there is no “credit component” in the transaction. It does not apply when the transaction is payable in cash. Effect of non-compliance Q: What are the effects of non-compliance? A:

6.

Finance charges (interest) compounded monthly, in Example: arrears/discounted, collectible quarterly/annually

1. 2.

Charges not disclosed need not be paid and If paid can be recovered



3.

4.

5.

Unenforceability and declaration of nullity are not the consequences of non-compliance with the Truth in Lending Act. The offender is liable to pay a penalty for an amount equal to twice the finance charge required by such creditor but not exceed P2,000 on any credit transaction. The action to recover the penalty should be brought within 1 year from the date of the occurrence of the violation. In case of willful violation of the law, the offender shall be liable to pay a fine or imprisonment or both at the option of the court.

Q: Who can file the action to recover? A: The action to recover the penalty may be instituted by the aggrieved private person separately and independently from the criminal case for the same offense (UCPB v. Sps. Beluso, 530 SCRA 567, 2007).

PHILIPPINE DEPOSIT INSURANCE CORPORATION (R.A. 3591 as amended by RA 9302) Basic Policy

Q: What if the borrower is not duly informed of the data required by RA 3765 prior to the consummation of the availment or drawdown? A: The lender will have no right to collect such charge or increases thereof, even if stipulated in the promissory note. However, such failure will not affect the validity or enforceability of any contract or transaction (Development Bank of the Philippines v. Arcilla, Jr., 462 SCRA 599, 2005) .

Q: What is the basic policy for the creation of PDIC? A: Promote and safeguard the interest of the depositing public by way of providing permanent and continuing insurance coverage on all insure deposits. Insured deposit Q: What is an insured deposit?

ON THE TRANSACTION

ON THE CREDITOR

Failure to disclose to any person any information in violation of TILA or any regulation issued. (Sec. 6 [a]) Charges not itemized cannot be Liable in the amount of P100 or collected. If already paid, can be in an amount equal to twice the recovered finance charged required by such creditor, whichever is the greater, however, such liability shall not exceed P2,000 on any credit transaction. Willful violation of any provision of TILA or any regulation issued. Except as provided in subsection Shall be liable to a fine of not (a), nothing shall affect the less than P1,000 or more than validity or enforceability of any P5,000 or imprisonment for not contract or transactions. less than 6 months, nor more than one year or both.

Q: What is the penalty for violation of law? A: The penalty for violation of the law is P100.00 or an amount equal to twice the finance charge required by such creditor in connection with such transaction, whichever is greater, except that such liability shall not exceed P2,000 on any credit transaction. Q: When must an action for violation of the Truth in Lending Act be brought? A: Within 1 year from the date of the occurrence of the violation. NOTE: As the penalty depends on the finance charge required of the borrower, the borrower’s cause of action would only accrue when such finance charge is r equired.

A: Insured deposit means the amount due to any bona fide depositor for legitimate deposits in an insured bank net of any obligation of the depositor to the insured bank as of the date of closure, but not to exceed P500,000.00. Such net amount shall be determined according to such regulations as the Board of Directors may prescribe. (As amended by Sec. 3, R.A. 9576)

Liability to depositors Q: Where does PDIC get the premiums? A: It collects premiums from the “banks.” Not from the depositors/client. It is based on a certain percentage of the total deposits, ¼ - 1%. Every year PDIC collects premium from the bank to insure their deposits dependent on the amount of the all the deposits. If the bank collapses, then you can file your claim with PDIC. This is the concept of PDIC. It ensures your deposit even without you paying the premium (which is paid by the bank). Q: When is the PDIC liable? A: PDIC can only be liable if the insured bank actually receives deposit and the bank is ordered to be closed by the BSP. Q: What are the CONDITIONS to make PDIC liable? A: 1. 2.

The bank must have receive deposits The bank became insolvent or closed because of insolvency. If the bank is operating in good condition



you don’t go to PDIC. You go to the bank to get back your money.

Q: What are the requisites in order for the deposits be covered by the insurance? A:

1. 2.

Trust Fund Money Market Placement - here you buy securities from the bank there is no creditor debtor relationship)

Q: What is a trust fund? 1.

2.

The unpaid balance of money or its equivalent received by a bank in the usual course of business and for which it has given of is obliged to give credit to a commercial, checking, savings, time or thrift account Must give rise to creditor-debtor relationship between the bank and the depositor

Q: What is the rule in case of deposits in a branch of domestic bank outside the Philippines? A: Deposits in a branch of domestic bank outside the Philippines shall not be covered unless the insured elects to include the same for insurance subject to approval of the PDIC. Commencement of liability Q: When will the liability by the PDIC to pay insured deposits commence? A: PDIC shall commence the determination of insured deposits due to the depositors of the closed bank upon its actual take-over of the closed bank.

A: Funds held by an insured bank in a fiduciary capacity and include, without being limited to, funds as trustee, executor, administrator, guardian or agent. Q: Why is Trust Fund not included? A: Because what are covered by the PDIC are only deposits, funds deposited with the bank giving rise to a creditor debtor relationship. So if there is no creditor-debtor relationship then that is not insured with PDIC. Extent of liability Q: What is the extent of PDIC’s liability?

A: The amount due to any depositor for deposits in an insured bank net of any obligation of the depositor to the insured bank as of the date of the closure, but not exceed P500,000.00 per depositor.

Determination of the insured deposits Q: When and how shall PDIC commence the determination of insured deposits?

Deposit accounts covered The following accounts are COVERED by PDIC: 1. Savings 2. Current/Checking Account (these are the same) 3. Dollar Deposits – the new law made it clear Dollar Deposits are covered. You have to convert the same to Philippine Currency at the time of closure of the Bank. Q: Are the deposits in foreign currency covered by the insurance?

A: PDIC shall commence the determination of insured deposits due the depositors of a closed bank upon its actual take-over of the closed bank. PDIC shall give notice to the depositors of the closed bank of the insured deposits due them by whatever means deemed appropriated by the Board of Directors. PDIC shall publish the notice once a week for at least 3 consecutive weeks in a newspaper of general circulation or, when appropriate, in a newspaper circulated in the community or communities where the closed bank or its branches are located. Calculation of liability

A: Deposit obligations in foreign currency of any insured bank are likewise insured. NOTE: Foreign currency deposits are covered under the provisions of RA 3591, as amended, and insurance payment shall be in the same currency in which the insured deposits are denominated.

Per depositor, per capacity rule Q: What are the types of deposits covered? A: Demand, savings, and time deposits. If the depositor has all three types of accounts with the same bank, he can only recover up to P500,000.00. He is considered as one depositor.

Accounts not covered Q: Is the liabiity of PDI on a per bank or per branch basis? Accounts NOT Covered by PDIC: 62 UNIVERSITY OF SANTO TOMAS


A: Per bank basis.

to insured deposit of such depositor, subject to submission of proof of claims

Q: How o you determine the amount due to a depositor? Effect of payment of insured deposits A: In determining such amount due to any depositor, there shall be added together all deposits in the bank maintained in the same right and capacity for his benefit either in his own name and the name of the ot hers.

Q: What is the effect of payment of the insured deposits? A: 1.

Joint accounts

2.

Rules: 1.

2.

3.

4.

5.

Deduct any loan of the depositor from the deposit with the insured bank to determine net insured deposit Individually owned deposit account is insured separately from joint accounts regardless of whether the conjunction “and,” “or,” “and/or” is issued. In determining such amount due to any depositor, there shall be added together all deposits in the bank maintained in the same right and capacity for his benefit either in his own name and the name of the others. If the account is held jointly by two or more natural persons, or by 2 or more juridical persons or entities, the maximum insured deposit shall be divided into as many equal shares as there are individuals, juridical persons or entities, unless a different sharing is stipulated in the document of deposit; If the account is held by a juridical person jointly with a natural person, the maximum shall be presumed to belong entirely to such juridical person or entity. The aggregate of the interests of each co‐owner over several joint accounts, whether owned by the same or different combinations of individuals, juridical persons or entities, shall likewise be subject to the maximum insured deposit of P500,000.00.

PDIC is discharged from any further liability to the depositor PDIC, upon the payment of any depositor, shall be subrogated to all the rights of the depositor against the closed bank to the extent of such payment. Subrogation shall include the right on the part of PDIC to receive the same dividends from the proceeds of the assets of such closed bank and recoveries on account of stockholder’s equity as would have been payable to the depositor on a claim for the insured deposit but such depositor shall retain his claim by any uninsured portion of his deposit.

Q: Are the insured deposits paid by PDIC considered as preferred credits against the closed bank? A: Yes. All the payments made by PDIC of insured deposits in closed banks partake of the nature of public funds, and as such, must be considered a preferred credit similar to taxes due to the National Government in the order of preference under Article 2244 of the New Civil Code. Q: What is the period by which PDIC shall settle a claim of the insured depositor? A: PDIC has 6 months from the date of filing of claim for insured deposit. Q: What is the effect of failure to settle a claim of insured of insured depositor within the 6-month period?

Illustration:

A: 1. 2. 3.

4.

A has P400k deposit- can recover P400k A has P200k deposit in 3 branches- only P500k A has P200k deposit in 3 branches of ABC and another P200k deposit in 3 branches of XYZ- P500k on each bank A and/or B P600k deposit- P300k each

Mode of payment Q: What are the modes of payment?

GR: Failure to settle the claim within 6 months, where such failure was due to grave a buse of discretion, gross negligence, bad faith, or malice, shall, upon conviction, subject the directors, officers or employees of PDIC responsible for the delay, to imprisonment from 6 months to one year. XPN: The period shall not apply if the validity of the claim requires the resolution of issues of facts and or law by another office, body or agency. Failure of depositor to claim insured deposits

A: 1. 2.

Cash Making available to each depositor a transferred deposit in another insured bank in an amount equal

Q: What is the period within which a depositor of insured deposits may file his claim? 63 UNIVERSITY OF SANTO TOMAS


A: 2 years from the closure of the bank by the Central Bank. Q: What is the effect of failure of depositor to claim insured deposits? A: Unless otherwise waived by the PDIC, if the depositor in the closed bank shall fail to claim his insured deposit with PDIC within 2 years from actual take-over of the closed bank by the receiver or does not enforce his claim filed with the PDIC within 2 years after the 2-year period to file a claim, all rights of the depositor against the PDIC with respect to the insured deposit shall be barred; however, all rights of the depositor against the closed bank and its shareholders or the receivership estate to which the PDIC may have become subrogated shall thereupon revert to the depositor. Q: When may the PDIC examine banks and deposit accounts? A: The PDIC may conduct examination of banks with prior approval of the MB provided that no examination can be conducted within 12 months from the last examination date; provided, however that PDIC may, in coordination with BSP conduct a special examination if there is a threatened or impending closure of a bank. Prohibiting against splitting of deposits Q: When does splitting of deposits occur?

private party, the insured bank, or any shareholder of the insured bank.

XPN: The Supreme Court may issue a restraining order or injunction when the matter is of extreme urgency involving constitutional issue, such that unless a temporary restraining order is issued, grave injustice and irreparable injury will arise. PDIC may reduce interest on deposit Q: Does PDIC have the power to reduce interest on deposit? A: PDIC law now empowers the PDIC to reduce the interest rate on any deposit made within 6 months prior to closure. So if you are induced by the “offer” of the bank of its high interest rate, think twice because all of these banks have closed in the past and PDIC , any way, has the power to reduce the interest rate to a reasonable level.

WAREHOUSE RECEIPTS LAW Q: What is a “warehouse receipt”?

A: A warehouse receipt is both an acknowledgment receipt and a bilateral contract between a warehouseman and a depositor.

A: Whenever a depositor’s deposit account exceeds P500,000.00 is broken down and transferred into 2 or more accounts in the name/s of natural or juridical persons who have no beneficial ownership on transferred deposits within 120 days immediately preceding or during a bank‐declared bank holiday, or immediately preceding a closure order by the Monetary Board of the BSP for the purpose of availing of the maximum deposit insurance coverage.

Q: When does Warehouse Receipts Law apply?

Q: What is he penalty for splitting of deposits?

A:

A: This law only applies if the receipt is issued by a “warehouseman as defined by law.” Nature and Functions Q: What is the nature of a warehouse receipt?

1.

A: The penalty of prison mayor or a fine or not less than P50,000.00 but not more than P2,000,000.00 or both, at the discretion of the court. 2.

Prohibition against issuance of TRO Q: What is rule regarding issuances of TROs, etc. against PDIC for acts under R.A. 3591, as amended? 3.

A: GR: No court, except the CA, shall issue any TRO, preliminary injunction or preliminary mandatory injunction against PDIC for any action under R.A. 3591, as amended. Such prohibition applies in all cases disputes or controversies instituted by a

It is a written acknowledgment by the warehouseman that he has received and holds certain goods therein described in his warehouse for the person to whom the document is issued. Receipts not issued by a warehouseman are not warehouse receipts although in the form of warehouse receipts. This transaction will not be governed by the warehouse receipts law but by the law on deposit A warehouse receipt is not a negotiable instrument within the meaning of the Negotiable Instruments Law even though the warehouse receipt, as a document of title, may be negotiable

Q: What are the 2-fold functions of the warehouse receipt?



A: 1. 2.

Q: Who may issue warehouse receipt?

A contract A receipt

A: Q: Distinguish Warehouse Receipts Documents of Title under the Civil Code.

Law

from

the

1. 2.

A warehouseman, whether public or private, bonded or not. (Sec. 1) A person authorized by a warehouseman.

A: WAREHOUSE RECEIPTS LAW Warehouse receipts issued by warehouses, whether public or private, bonded or not

DOCUMENTS OF TITLE UNDER THE CIVIL CODE Other receipts of documents issued in bailment contracts other than warehouse receipts (Civil Code 1 1507‐1520)

Q: if X is warehouseman and he issued a warehouse receipt, what does that mean? A: 1. 2.

Q: Who is a warehouse man? A: A person, natural or juridical, lawfully engaged in the business of storing of goods for profit. (Sec. 58, WRL)

It means that the warehouseman acknowledges the receipt of the goods, And it is bilateral contract in the sense that the warehouseman has the obligation to safekeep and preserve the goods of the goods in his possession using due diligence of a good family, pending the delivery to the depositor or any person entitled to possession and he has the right to be paid storage charges as stipulated in the document.

Q: What are the rights of a warehouseman? Q: What is the form of a warehouse receipt and what are its essential terms?

A: 1.

2.

3.

He has to be paid storage charges and other fees as may be stipulated in the warehouse receipt. If he is not paid the storage charges, he may withhold delivery of the goods in his po ssession; OR When there is an offer pay the lien or the charges but the claimant/depositor doesn’t want surrender the receipt, then the warehouseman cannot be compelled to deliver; OR If the depositor/claimant doesn’t want to acknowledge the receipt of goods, then the warehouseman cannot be compelled to deliver .

A: It need not be in particular form but must embody within its written or printed terms: 1. 2. 3. 4.

5. 6. 7. 8.

Q: What are the basic conditions before a warehouseman can be compelled to deliver? A: 1. 2.

3.

The lien must be paid. This is compose of storage charges and other fees. The receipt must be surrendered or returned to the warehouseman The claimant/depositor must acknowledge the receipt of the goods

Q: What is a warehouse?

9.

Q: What are the effects of omission of any of the essential terms? A: 1.

A: The building or place where goods are deposited and stored for profit. 1

Article 1507 A document of title in which it is stated that the goods referred to therein will be delivered to the bearer, or to the order of any person named in such document is a negotiable document of title. (n)

The location of the warehouse The date of the issue The consecutive number of the receipt A statement whether the goods received will be delivered to bearer, to a specified person or to a specified person or his order Fees description of the goods The signature of the warehouseman If the receipt is issued for goods of which the warehouseman is the owner, either solely or jointly or in common with others, the fact of such ownership; and A statement of the amount of advances made and of liabilities incurred for which the warehouseman claims a lien. (Sec. 2)

2. 3. 4.

A warehouseman shall be liable to any person injured thereby for all damages caused by the omission Validity of receipt not affected Negotiability of receipts not affected Contract is converted to ordinary deposit.



Q: What is the effect when the goods deposited are incorrectly described? 6.

A: It does not make the receipt ineffective when the identity of the goods is fully established by evidence. Thus, the indorsement and delivery shall constitute sufficient transfer of the title of the goods. 7.

GR: Warehouseman shall be liable for damages for non‐existence or misdescription of goods at the time of its issue. XPN: When the goods are described based on: 1. 2.

Series or labels upon them Statement that the goods are of certain kind.

8.

Q: What terms may and may not be inserted? A: A warehouseman may insert in a receipt issued by him any other terms and conditions provided that such terms and conditions shall not be: 1. 2. 3. 4.

5.

Contrary to the Warehouse Receipts Law. (Sec. 3) Terms reducing the required diligence of the warehouseman. Contrary to law, morals, good customs, public order or public policy. Those exempting the warehouseman from liability for misdelivery or for not giving statutory notice in case of sale of goods. Those exempting the warehouseman from liability for negligence.

To whom delivered

9.

KINDS OF WAREHOUSE RECEIPTS Q: What are the kinds of warehouse receipts? A: 1.

Q: To whom is the warehouse receipt delivered? A: 2.

In general 1. 2. 3.

To the person lawfully entitled to the possession of the goods or his agent The person entitled to the delivery under a nonnegotiable receipt Person in possession of a duly negotiated warehouse receipt

negotiated warehouse receipt, the latter has the better right The rights of the assignee of a non-negotiable warehouse receipt may be defeated by the judgment creditor of the depositor or the unpaid seller of the goods deposited pending notice to the warehouseman of the assignment or transfer If the goods were stolen from the owner and deposited to the warehouseman who subsequently issued a warehouse receipt which in turn was duly negotiated to an innocent purchaser for value, the owner has the better right than the holder of the negotiable warehouse receipt. This is because a thief transfers no title. If the goods were deposited by the owner for which the warehouseman issued a negotiable warehouse receipt but the receipt was negotiated in bad faith, the holder of such negotiable warehouse receipt has a better right against owner because the validity of the negotiation is not impaired by the fact that such negotiation was a breach of duty on the part of the person making the negotiation provided the holder has no notice of the breach of duty or fraud, mistake or duress. The negotiation of the warehouse receipt by the buyer of goods from and deposited to the warehouse is valid even if the warehouseman who issued a negotiable receipt was not paid by the buyer.

Negotiable warehouse receipt - is a receipt in which it is stated that the goods received will be delivered to the bearer or to the order of any person named in such receipt. Non-negotiable warehouse receipts - a receipt in which it is stated that the goods received will be delivered to the depositor or to any other specified person.

Negotiable warehouse receipt May be acquired through negotiation Rights of the holder of the receipt:

Non-negotiable warehouse receipt May be acquired through transfer or assignment Rights of transferee:

Specific situations 1. If indorsed: 4.

5.

Between a judgment creditor and holder of a duly negotiated warehouse receipt, the latter has the better right Between the unpaid seller of the goods deposited to the warehouseman and the holder of a duly

a. Acquires title to the goods as the person negotiating. (Sec. 41) b. Acquires the direct

1. Acquires title to the goods subject to the terms of any agreement with the transferor. (Sec. 42) 2. Acquires the right to notify the warehouseman of 66 UNIVERSITY OF SANTO TOMAS


2.

The holder of the negotiable warehouse receipt are not subject to the unpaid vendor’s lien. The holder of the negotiable warehouse receipt acquires the direct obligation of the warehouseman to hold the goods in his favor with or without notice of the negotiation.

obligation of the warehouseman to hold possession of the goods for him as if the warehouseman directly contracted with him. (Ibid.)

the transfer and thereby acquires the direct obligation of the warehouseman to hold possession of the goods for him. (Sec. 42)

2. If not indorsed: He may compel indorsement; otherwise, he would acquire title as that of an assignee (Section 43).

NOTE: Prior to notice, the title of the transferee may be defeated by the levy of an attachment or execution upon the goods by a creditor of the transferor or by a notification to the warehouseman by the transferor or a subsequent purchaser from the transferor of a subsequent sale of the goods by the transferor. (Sec. 42) Acquires the title as that of his transferor.

Q: What is required in a non‐negotiable receipt?

Pending notification to the warehouseman, goods can be.

Q: What is the effect of indorsement?

Defeats the lien of the seller of the goods covered thereby. Good covered cannot be garnished, attached or levied on execution by execution, unless: 1. Receipt is surrendered. 2. Its negotiation is enjoined by the court. 3. The goods are impounded by the court. (Sec. 25)

Note: This shall not apply if the person depositing is not the owner of the goods or one who has no right to convey title to the goods binding upon the owner. Protects the purchaser in good faith and for value.

Reason: Absent such notice, both the warehouseman and the sheriff have a right to assume that the goods are still owned by the person whose name appears in the receipt.

a. b. c.

A: It shall have plainly placed upon its face by the warehouseman issuing it “non‐negotiable,” or “not negotiable.” (Sec. 7) NOTE: Failure to mark “non‐negotiable” shall make it negotiable (if the holder purchased it for value supposing it to be negotiable). Q: How is it transferred? A: A non‐negotiable warehous e receipt may be transferred by its delivery to the transferee accompanied by a deed of assignment, donation or other form of transfer.

A: Even if the receipt is indorsed, the transferee acquires no additional right (Sec. 39) Q: Distinguish between negotiable negotiable warehouse receipts.

The assignee only steps into the shoes of the assignor.

The goods while in the possession of the warehouseman cannot be garnished or levied on execution UNLESS: the receipt is surrendered or the negotiation is enjoined, or the receipt is impounded by order of court

instrument

and

A: NEGOTIABLE INSTRUMENT The obligation is to pay money while in a warehouse receipt, the obligation is to deliver goods.

Q: What are the advantages of a negotiable warehouse receipt? 1.

3.

The general endorsers warrant that the instrument, after due presentment, shall be paid and in that case of dishonor and notice of dishonor is duly given, the endorser shall pay the holder

NEGOTIABLE WAREHOUSE RECEIPT In a warehouse receipt, the endorsers or immediate parties are not liable for any failure on the part of the warehouseman or previous endorsers of the receipt to fulfill their obligations. The endorsers of a negotiable warehouse receipt may however be held liable for breach of warranties, such as: 1. The receipt is genuine and in respects what it purports to be; 2. They have legal title to the instrument; 3. The goods are fit for consumption and merchantable; 4. They are not aware 67 UNIVERSITY OF SANTO TOMAS


of any information that would render the instrument valueless or worthless

A: 1.

Q: Who may negotiate? A: 1. 2.

2.

The owner thereof; Any person to whom the possession or custody of the receipt has been entrusted by the owner, if, by the terms of the receipt, the goods are deliverable to the order of the person to whom the possession or custody of receipt has been entrusted or in such form that it may be negotiated by delivery. (Sec. 40)

3.

The holder of a negotiable receipt acquires: a. Such title to the goods as the depositor or the person negotiating had or had ability to convey to a purchaser in good faith for value; b. The direct obligation of the warehouseman to hold possession of the goods for him according to the terms of the receipt as if the warehouseman had contracted directly with him The goods covered by the receipt cannot be garnished or levied upon under execution unless the receipt is surrendered, or impounded or its negotiation enjoined. The goods that the receipt covers are not subject to a seller’s lien or stoppage in transit.

RIGHTS OF A TRANSFEREE OF A NON -NEGOTIABLE WAREHOUSE RECEIPT

Q: What happens if the indorsement is necessary but the negotiable receipt was only delivered?

Q: What are the rights of a holder of a negotiable warehouse receipt?

A: 1. 2. 3.

The transferee acquires title against the transferor There is no direct obligation of the warehouseman; and The transferee can compel the transferor to complete the negotiation by indorsing the instrument. Negotiation takes effect as of the time when the indorsement is actually made.

Q: In case the signature of an owner of a negotiable receipt was forged and the forger who now holds the negotiable receipt was able to withdraw the goods from the warehouseman. What are the rights of the owner of the negotiable receipt? A: If under the terms of the negotiable warehouse receipt, the goods are deliverable to the depositor or to his order, the owner of the said negotiable receipt may proceed against the warehouseman and/or the holder. Without the valid indorsement of the owner to the holder or in blank, the warehouseman is liable to the owner for conversion in the misdelivery. If, however, by the terms of the negotiable warehouse receipt, the goods are deliverable to bearer (either because it is so expressed in the warehouse receipt or because of a blank indorsement by a person to whose order the goods are deliverable) the owner may only proceed against the holder. The warehouseman is not liable for conversion where the goods are delivered to a person in possession of a bearer negotiable instrument. RIGHTS OF A HOLDER OF A NEGOTIABLE WAREHOUSE RECEIPT Q: What are the rights of a holder of a negotiable warehouse receipt?

A: 1. 2. 3. 4.

The title to the goods as against the transferor The right to notify the warehouseman of the transfer thereof The right, thereafter, to acquire the obligation of the warehouseman to hold the goods for him The right of the transferee is not absolute as it is subject to the terms if any agreement with the transferor. He merely steps into the shoes of the transferor.

Q: Coco was issued by a warehouseman a negotiable receipt for safekeeping by the latter of his goods. Can the judgment creditor of Coco levy by execution the goods covered by the negotiable receipt? A: The goods cannot, while in the possession of the warehouseman, be attached by garnishment or otherwise, or be levied upon under an execution unless the receipt be first surrendered to the warehouseman, or its negotiation enjoined. The warehouseman cannot be compelled to deliver the actual possession of the goods until the receipt is surrendered to it or impounded by the court. Q: Assuming that prior to the levy, the receipt was sold to Yoyo on the basis of which he filed a claim with the sheriff. Would Yoyo have better rights to the goods than the creditor? Explain your answer. A: Yes. Yoyo, as a holder for value of the receipt, has a better right to the goods than the creditor. It is Yoyo that can surrender the receipt which is in its possession and can comply with the other requirements which will oblige the warehouseman to deliver the goods, namely, to sign a receipt



for the delivery of the goods, and to pay the warehouseman's liens and fees and other charges. (1999 Bar Question)

1.

Q: Bon took the goods of Angela without her consent and deposited the same with a warehouseman. The latter issued to Bon a negotiable receipt which she indorsed for value to Ryan. Between Angela and Ryan, who has better right over the goods? Why?

2.

A: Ryan has better right to the goods. The goods are covered by a negotiable warehouse receipt which was indorsed to Ryan for value. The negotiation to Ryan was not impaired by the fact that Bon took the goods without the consent of Angela, as Ryan had no notice of such fact. Moreover, Ryan is in possession of the warehouse receipt and only he can surrender it to the warehouseman . (Sec. 8, WRL) Q: What is the proper recourse of the warehouseman if h e is uncertain as to who is entitled to the goods? Explain. A: Since there is a conflicting claim of ownership or title, the warehouseman should file a complaint in interpleader requiring Ryan and Angela to interplead. The matter involves a judicial question as to whose claim is valid. Q: What is the rule where a warehouse receipt is transferred to secure payment of a loan by way of pledge or mortgage? A: The pledgee or mortgagee does not automatically become the owner of the goods but merely retains the right to keep and with the consent of the owner to sell them so as to satisfy the obligation from the proceeds for the simple reason that the transaction is not a sale but only a mortgage or pledge. Likewise, if the property is lost without the fault or negligence of the mortgagee or pledgee, then said goods are to be regarded as lost on account of the real owner, mortgagor or pledgor. Q: Does the non‐payment by the original depositors of the purchase price render the further negotiation of the receipt invalid?

A: No, the negotiation of the warehouse receipt by the buyer of goods purchased from and deposited to the warehouseman is valid even if the warehouseman who issued the negotiable warehouse receipt was not paid by the buyer. The validity of the negotiation cannot be impaired by the fact that the owner/warehouseman was deprived of the possession of the same by fraud, mistake or conversion. DUTIES OF WAREHOUSEMAN

To take care of the goods entrusted to his safekeeping with the same care as reasonably careful owner of similar goods would exercise To deliver the goods to the holder of the receipt or the deposit provided the following conditions are fulfilled. a. Offer to satisfy the warehouseman’s lien b. Offer to surrender the receipt, if negotiable with such indorsements as would be necessary for the negotiation of the receipt c. Readiness and willingness to sign when the goods are delivered acknowledgement that they have received

NOTE: The refusal of the warehouseman who previously owned goods stored with it to deliver the goods to the endorsee of the receipt on the ground that the goods had no t been paid by the buyer is unlawful. The warehouseman has no cause of action for repossession and damages against a person to whom it delivered deposited articles on the basis of an alleged falsified the delivery permit where the real parties interested in the questioned articles have not yet sued the warehouseman for damages on account of wrongful delivery.

Q: What if the receipts are lost or destroyed? A: A court of competent jurisdiction may order the delivery of the goods only: a. b.

Upon satisfactory proof of the loss or destruction of the receipt; and Upon the giving of a bond with sufficient sureties to be approved by the court. (Sec. 14)

NOTE: The delivery of the goods under an order of the court shall not relieve the warehouseman from liability to a person to whom the negotiable receipt has been or shall be negotiated for value without notice of the proceedings or of the delivery of the goods. (Sec. 14) Q: When does the duty to insure the goods arise? A: 1. 2. 3. 4.

Where the law provides Where it was an inducement for the depositor to enter into the contract; Established practice; or Where the warehouse receipt contains a representation to that effect.

Q: What are the duties of warehouseman? Q: What is conversion? A: A: An unathorized assumption and exercise of the right of ownership over goods belonging to another through the 69 UNIVERSITY OF SANTO TOMAS


alteration of their condition or the exclusion of the owner’s right.

7. 8.

Q: What are the instances where a warehouseman is liable for conversion?

Issuance of warehouse receipts for good not received. (Sec. 50) Commingling of goods. (Sec. 24)

Q: What are the other acts for which warehouseman is liable?

A: A: 1. 2.

Where the delivery is made to person other than those authorized Even if delivered to persons entitled, he may still be liable for conversion if prior to delivery: a. He had been requested not to make such delivery; or b. He had received notice of the adverse claim or title of a third person.

1. 2.

3. 4. 5.

Q: Give the effects of alteration of the receipt on the liability of the warehouseman.

6. 7.

A: 1.

2.

3.

4.

Alteration immaterial – whether fraudulent or not, whether authorized or not, the warehouseman is liable on the altered receipt according to its original tenor Authorized material alteration – the warehouseman is liable according to the terms of the receipt as altered Material alteration innocently made – the warehouseman is liable on the altered receipt according to its original receipt Material alteration fraudulently made – warehouseman is liable according to the original tenor of the receipt to a purchaser of the receipt for value without notice, and even to the alterer and subsequent purchasers with notice except that as regards to the last two, the warehouseman’s liability is limited only to delivery as he is excused from any liability.

Q: What are the instances where a warehouseman is criminally liable for his acts?

Failure to stamp “duplicate” on copies of ne gotiable receipt. (Sec.6) Failure to place “non‐negotiable” or “not‐negotiable” on a non‐negotiable receipt. (Sec. 7) Misdelivery of goods.(Sec. 10) Failure to effect cancellation of a negotiable receipt upon delivery of the goods. (Sec. 11) Issuing receipt for non‐existing goods o r misdescribed goods. (Sec.20) Failure to take care of the goods. (Sec. 21) Failure to give notice in case of sale of goods to satisfy lien (Sec. 33) or because the goods are perishable or hazardous. (Sec. 34) WAREHOUSEMAN’S LIEN

Q: What is the rule when more than one negotiable receipt is issued for the same goods? A: A warehouseman shall be liable for all damages caused by his failure to do so to anyone who purchased the subsequent receipt for value supposing it to be an original, even though the purchase be after the delivery of the goods by the warehouseman to the holder of the original receipt (Sec. 6). Q: What is the warehouseman’s lien?

A: The warehouseman’s lien over the goods deposited with him is his security, just like a pledge mortgage for the payment of the charges for the storage and preservation of the goods, money advanced and other expenses in relation to such goods. Q: What are the remedies available to the warehouseman to enforce his lien?

A: A: 1. 2. 3. 4.

5. 6.

Issuance of receipts for goods not received. (Sec. 50) Issuance of receipt containing false statement. (Sec. 51) Issuance of duplicate negotiable warehouse receipt not marked as such. (Sec. 52) Issuance of a negotiable warehouse receipt of which he is an owner without stating such fact of ownership. (Sec. 53) Delivery of goods without obtaining negotiable warehouse receipt. (Sec. 54) Negotiation of receipt for mortgaged goods. (Sec. 5)

1. 2. 3.

4.

Refuse to deliver the goods until his lien is satisfied To sell the goods and apply the proceeds to the value of the lien By other means allowed by law to a creditor against his debtor for the collection from the depositor of all charges and advances which the debtor contracted with the warehouseman; or Such remedies allowed by law for the enforcement of a lien against personal property.

Q: What is the rule in case of the lien of the warehouse? 70 UNIVERSITY OF SANTO TOMAS


A: A warehouseman’s lien should in no event go beyond the value of the credit in favor of the pledge.

Must be registered, otherwise, it is not valid against third persons although binding between the parties Real right and real property by itself

Q: Where will the warehouseman’s fees and charges cease to accrue?

Q: What else are deemed included in a mortgage of real property?

A: A warehouseman fees and charges cease to accrue from the date of the rejection by the warehouseman to heed the lawful demand by the endorsee if the quedan for the release of the goods.

A:

REAL ESTATE MORTGAGE LAW

1. 2.

3.

Q: What is the essence a contract of mortgage?

4.

A: Its essence is that a property has been identified or set apart from the mass of property of the debtor as security for the fulfillment of his obligation, in case of default of payment.

5.

NOTE: In this contract, as a general rule, the debtor retains possession of the property mortgaged as a security for the payment of the sum barrowed from the creditor because by mortgage, the debtor merely subjects the property to a lien but ownership thereof is not parted with.

6.

It is not however essential that the property mortgaged remains in the possession of the mortgagor. Thus, the latter may deliver said property to the mortgagee without thereby altering the nature of the contract.

Q: What is real estate mortgage (REM)? A: It is a contract whereby the debtor secures to the creditor the fulfillment of a principal obligation, specially subjecting to such security immovable property or real rights over immovable property which obligation shall be satisfied with the proceeds of the sale of said property or rights in case the said obligation is not complied with at the time stipulated. Nature Q: What is the nature of REM? A: It creates real right over the property, such that in subsequent transfers by the mortgagor, the transferee must respect the mortgage. REAL ESTATE MORTGAGE Consensual contract Subject matter is real property Possession of the thing mortgaged remains with the debtor Mortgagee does not possess such right

New plantings; Fruits, except those collected before the obligation falls due, and those removed and stored when it falls due; Accrued and unpaid rents as well as those which should have to be paid while certain credits remains wholly unsatisfied; Buildings, machinery and accessories belonging to the mortgage debtor All objects permanently attached to a mortgaged land or building although they may have been placed there after the execution of the mortgage are also included; A more costly building erected in place of the mortgaged building which was torn down by the debtor unless the mortgaged estate passes to the hands of a third person, the mortgage does not extend to any machinery, object or construction which he may have brought or placed there and which such third person may remove whenever it is convenient for him to do so.

After-acquired properties Q: What is the effect of any stipulation in the mortgage contract including after-acquired properties? A: It is valid. This is common and logical in cases where the properties given as collateral are perishable or subject to inevitable wear and tear or were intended to be sold or to be used but with the understanding that they shall be replaced with others to be thereafter acquired by the mortgagor. Its purpose is to maintain the original value of the properties given as security. A mortgage given to secure future advancements enables the parties to provide continuous dealings, the nature or extent of which may not be known or anticipated at the time, and they avoid the expense and inconvenience of executing a new security on each new transaction.

Q: In such stipulation is the attachment of lien retroactive? A: The said lien attaches and vests not at the time said improvements are constructed but on the date of the recording and registration of the deed of mortgage.

Sale may be judicial or extrajudicial 71 UNIVERSITY OF SANTO TOMAS


NOTE: As a rule, an action to foreclose a mortgage must be limited to the amount mentioned in the mortgage. But the amounts named as consideration in a contract of mortgage do not limit the amount for which the mortgage may stand as security, if from the 4 corners of the instrument the intent to secure future loans or advancements and other indebtedness can be gathered.

Remedies available to mortgagee upon default of the mortgagor Q: What are the remedies available to mortgagee upon default of the mortgagor? A:

Dragnet clause 1.

Q: What is a dragnet clause? A: It is a clause which operates as a convenience and accommodation to the barrowers as it makes available additional funds without their having to execute additional security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees etc. It subsumes all debts of past or future origin.

2.

Q: How do you construe such clause? A: It must be carefully scrutinized and strictly construed particularly where the mortgage contract is one of adhesion. NOTE: A mortgage must sufficiently describe the debt sought to be secured, and an obligation is not secured by a mortgage unless it comes fairly within the terms of the mortgage. But where the obligation is not a series of indeterminate sums incurred over a period of time but 2 specific amounts procured in a single instance, what applies is the general rule state above that an action to foreclose a mortgage must be limited to the amount mentioned in the mortgage. A mortgage given to secure future advancements is a continuing security and is not discharged by the repayment of the amount named in the mortgage, until the full amount of the advancements is paid. It permitted the mortgagor to take the money as it is needed and thus avoid the necessity of paying interest until the necessity for its use a ctually arises

Stipulation forbidding owner from alienating immovable property Art. 2130. A stipulation forbidding the owner from alienating the immovable mortgaged shall be void. (n) NOTE: The mortgagee can simply withhold his consent and thereby prevent the mortgagor from selling the property. Yet, in case of alienation of property, the transferee is bound to respect the encumbrance because being a real right, the property remains subject to the fulfillment of the obligation for whose guaranty it was constituted.

3.

4.

He may file an action for collection to enforce payment of the loan secured by the REM. The filing of an action for collection, regardless of venue, precludes the remedy of foreclosure, As an alternative remedy, the mortgage may foreclose the mortgage. The foreclosure may be done judicially or extra-judicially. Foreclsoure bars action for collection unless it is done to recover deficiency after the foreclosure sale. The only exception is when the complaint for judicial foreclosure is filed but the court dismissed because the REM did not have the written conformity of the spouse but the court ordered the mortgagee to file an action for collection. The action for collection may be sustained to prevent unjust enrichment. If the loan is secured by the real estate and chattel mortgages and the mortgagee elects to foreclose the chattel mortgage, he cannot file an action to recover any deficiency unless he has foreclosed too the REM and the proceeds thereof are still insufficient to satisfy the debt The filing of criminal case for violation of BP 22 by the mortgagee-creditor against the mortgagor will bar the former from exercising the remedy of foreclosure because under the Rules of Criminal Procedure, he is deemed to have already availed himself the remedy of collection suit.

Foreclosure of REM Q: What is foreclosure? A: It is the remedy available to the mortgagee by which he subjects the mortgaged property to the satisfaction of the obligation to secure which the mortgage was given through the sale of the property at public auction and the application of the proceeds thereof to the payment of his claim. NOTE: Foreclosure denotes the procedure adopted by the mortgagee to terminate the rights of the mortgagor on the property and includes the sale itself. Q: What is the remedy of a party aggrieved by the foreclosure? A: He may petition that the sale be set aside and the writ of possession be canceled because the mortgage was not violated or the sale was not made in accordance with the 72 UNIVERSITY OF SANTO TOMAS


provisions thereof. He may ask for the annulment of the foreclosure sale on ground that: a.

b. c.

There was fraud, collusion, accident, mutual mistake, breach of trust or misconduct by the purchaser; Sale had not been fairly and regularly conducted; The price was inadequate and the inadequacy was so great as to shock the conscience of the court.

Q: In what newspaper shall the notice of sale be published? A: It shall be published in a newspaper of general circulation once a week for 3 consecutive weeks. Q: What is the test to determine the sufficiency of newspaper of general circulation? A: It should cater to the general community and not to specific group or interest only.

Need of power of attorney Q: What is the requirement regarding the agreement involving real estate mortgage?

Q: When is a paper deemed a newspaper of general circulation? A:

A: The loan or mortgage agreement should contain a special power of attorney authorizing the mortgagee to foreclose extra-judicially (to take possession of the property and sell it in case of default). This SPA is the basis of the right of the mortgagee to foreclose the mortgage extra-judicially. Q: Why is special of power of attorney needed? A: Because an extrajudicial foreclosure may only be effected if the mortgage contract covering a real estate, clause is incorporated therein giving the mortgagee the power, upon default of the debtor to foreclose the mortgage by an extrajudicial sale of the mortgaged property. Procedure

1. 2. 3. 4.

5.

It must be published for the dissemination of local news and general information; It must have a bona fide subscription list of paying subscribers; It must be published at regular intervals; and It must be available to the public in general and not just to a select few chosen by the publisher, otherwise, the precise objective of publication of notice of sale will not be realized; It must not be devoted to the interests or published for the entertainment of a particular profession, trade, calling, race or religion.

Need for Republication in case of postponement

Q: Where is the venue of the action?

Q: When is republication required?

A: The petition for sale is not an ordinary action and is therefor not governed by the rules on venue. The petition/s for sale must be filed with the Office of the Clerk of Court of the City where the real property/ies is/are situated.

A: In case of postponement, the notice of sale must be republished once a week for 3 consecutive weeks unless the notice of sale contains an alternative date and the sale is subsequently conducted on such date.

Posting requirement

Q: Can the publication and posting requirements be waived?

Q: Where should the notice of sale be posted? A: It shall be posted in a conspicious place where the sale shall be conducted: a. b. c.

Sheriff’s Office; Assessor’s Office; and Register of Deed

Q: What is the posting requirement be waived? A: The posting requirement is jurisdictional and as such, cannot be waived. The certificate of posting may be waived but not the actual posting itself. Publication requirement

A: No, they are imbued with public policy considerations and any waiver thereon would be inconsistent with the intent and letter or the law. It would thus be converting into a private sale what ought to be a public auction. Yet, the failure to post a notice is not per se a ground for invalidating a foreclosure sale provided that the notice thereof is duly published in a newspaper of general circulation. The publication accordingly alone is more than sufficient compliance with the notice-posting requirement.

Personal notice to the mortgagor when and when need not needed Q: Is personal notice to the mortgagor of the date, time and place of the sale required?



A: GR: No because publication amounts to notice to the whole world XPN: Personal amounts to notice to the whole worls unless personal notice is required by: 1. Stipulation, in which case, it must be complied with in addition to publication, otherwise, the foreclosure is void.

A: If the deficiency is embodied in the judgment, it is referred to as deficiency judgment. A mortgagee may recover any deficiency in the mortgage account which is not realized in the foreclosure sale and that an independent civil action for the recovery of the deficiency may be filed even during the period of redemption.

Possession by purchaser of foreclosed property

A: The action to recover a deficiency after foreclosure prescribes after 10 years from the time the right of action accrues.

Q: During the period of redemption, is the mortgagee entitled to possession as a matter of right?

Q: What is the prescriptive period for the action?

The mortgagee in both real and chattel mortgages has, by law, the right to claim for the deficiency resulting from the price obtained in the sale of the property at public auction.

A: GR: No. During the period of redemption, the mortgagee is not entitled to possession as a matter of right. It is discretionary to the court and subject to bond requirement.

NATURE OF JUDICIAL FORECLOSURE PROCEEDING Q: What is the nature of judicial foreclosure proceeding?

XPN: But if the petition for writ of possession is prayed for after the expiration of the redemption period and consolidation of title in favor of the mortgagee, the issuance of the writ is ministerial duty on the part of the court and bond is not required.

A: It is an action quasi in rem which is based on a personal claim against a specific property of the defendant. Its purpose is to have the property seized and sold by court order to the end that the proceeds thereof be applied to the payment of plaintiff’s claim.

Remedy in case of foreclosure Q: What is the result of failure to pay indebtedness? Q: If there is a balance due to the mortgagee after applying the proceeds of the sale, is the mortgagee entitled to recover the deficiency? A: Yes. However, in case of extrajudicial foreclosures, Act. 3135 does not give a mortgagee the right to recover deficiency after the public auction sale, neither does it expressly or impliedly prohibit such recover. NOTE: To recover deficiency, the extrajudicial foreclosure must be valid.

A: The principal obligation is the money indebtedness and the subjection of the property is only resorted to upon the failure to pay the debt. Thus, the money indebtedness is the principal thing not the foreclosure of the property which is the only result or an incident of the failure to pay the debt. NOTE: The fact that the property mortgaged is destroyed is not ground to reduce the indebtedness secured. Action for the foreclosure of mortgage survives after the death of the mortgagor

Q: Why is the mortgagee entitled to recover deficiency? A: In both extrajudicial and judicial foreclosures, the mortgage is but a security and not a satisfaction of the indebtedness. It is of no importance if the buyer or highest bidder is the creditor himself. NOTE: Where a third person is the mortgagor, he is not liable for any deficiency in the absence of a contrary stipulation. The action for the recovery of such deficiency must be directed against the debtor. CONCEPT OF DEFICIENCY JUDGMENT Q: Explain the concept of deficiency judgment.

Q: Does the action for the foreclosure of mortgage survive after the death of the mortgagor? A: Yes. It is an action which survives the death of the mortgagor because the claim against him is not a pure money claim but an action to enforce a mortgagee lien. Consequently, the judgment rendered therein may be enforced by a writ of execution. Q: What is the remedy? A: It may be prosecuted against the executor or administrator independently of the testate or intestate proceedings for the settlement of the mortgagor’s estate.



NATURE OF POWER OF FORECLOSURE BY EXTR AJUDICIAL SALE NOTE: The power to foreclose is not an ordinary agency that contemplates exclusively the representation of the principal by the agent but is primarily an authority conferred upon the mortgagee for the latter’s own pr otection.

NOTE: The value of the property has no bearing on the bid price at the public auction, provided that it was regularly and honestly conducted. WAIVER OF SECURITY BY MORTGAGEE NOTE: The ME may institute either a: a.

Q: What is the nature of the power of foreclosure by extra judicial sale? b.

A: It is an ancillary stipulation supported by the same cause or consideration for the mortgage and forms an essential and inseparable part of the bilateral agreement. It is proper only when so provided under a special power inserted in or attached to the mortgage contract. NOTE: The power to decide to foreclose or not is the prerogative of the mortgagee.

personal action for debt (he may waive the right to foreclose his mortgage and maintain a personal action for recovery of the indebtedness) or a real action to foreclose the mortgage. In either case, he is entitled to obtain a deficiency judgment for whatever sum might be due after the liquidation of the property covered by the mortgaged.

Q: What is the nature of these remedies? A: The remedy is alternative and not cumulative or successive—mortgagee cannot have both remedies since he has only 1 cause of action.

STIPULATION OF UPSET PRICE Q: Is a stipulation of upset price valid? A: A stipulation in a mortgage of real property fixing an upset price—the minimum price at which the property shall be sold—to become operative in the event of a foreclose sale at public auction is null and void for the property must be sold to the highest bidder.

Q: What are the remedies of the CR holding a real estate mortgage for the satisfaction of his credit in case the MR dies? A: 1. 2.

It is debatable however if the rule will still apply where the purchaser happens to be the creditor or mortgagee himself.

EFFECT OF INADEQUACY OF THE PRICE Q: What is the effect of the inadequacy in the price in foreclosure sale? A: Where there is a right to redeem, inadequacy of the price is not material because the judgment debtor may reacquire the property or else sell his right to redeem and thus recover any loss he claims to have suffered by reason of the price obtained at the auction sale. Q: Is inadequacy of price sufficient to annul or set aside foreclosure sale? A: Mere inadequacy of the price will not be sufficient to annul or set aside the foreclosure sale. The property may be sold for less than its fair market value upon the theory that the lesser the price the easier for the owner of to effect the redemption so that the low price even works to his advantage.

3.

Waive the mortgage and claim the entire debt from the estate of the MR as an ordinary claim; Foreclose the mortgage judicially and prove any deficiency as an ordinary claim; Rely on the mortgage exclusively, foreclosing the same at any time before it is barred by prescription without right to file a claim for any deficiency. This is an extrajudicial foreclosure which bars any subsequent deficiency claim against the estate of the deceased.

Q: Does foreclosure have retroactive effect? A: A foreclosure sale retroacts to the date of the registration of the mortgage and that a person who takes a mortgage in good faith and for valuable co nsideration, the record showing clear title to the MR will be protected against equitable claims on the title in favor of third persons of which he had no actual or constructive notice. NOTE: A notice of adverse claim annotated after the registration of the mortgage but before the foreclosure and sale at public auction of the property cannot affect the rights of the ME. Thus, it no longer matters that the annotation of the sheriff’s certificate of sale and the affidavit of consolidation of ownership was made subsequent to the annotation of the notice of lis pendens.



REDEMPTION Q: What is redemption? A: It is the transaction by which the mortgagor reacquires or buys back the property which may have passed under the mortgage or divests the property of the lien which the mortgage may have created. Q: What is the purpose of redemption? A: The concept of redemption is to allow the owner to repurchase or buy back, within a certain period and for a certain amount, a property that has been sold due to debt, tax, or encumbrance.

EQUITY OF REDEMPTION Exercised before confirmation of sale Q: When can the mortgagor exercise the equity of redemption? A: The mortgagor must exercise his equity of redemption before but not after the sale is confirmed by the court. It is simply the right of the defendant mortgagor to extinguish the mortgage and retain ownership of the property by paying the secured debt within the 90-day period after the judgment becomes final in accordance with Rule 68, or even after the foreclosure sale but prior to its confirmation. Q: What if the case is one of judicial foreclosure?

Q: What is the redemption period? A: No equivalent right of redemption exists. A: GR: Within one year from the registration of the sale and not from actual sale.

NOTE: Being an incorporeal right , the value of an equity of redemption can neither be quantified nor equated with actual value of the property nor equated with the actual value of the property upon which it may be exercised.

XPN: If the following requisites are present, the redemption period is 3 months from the date of the sale or registration, whichever comes earlier:

Acquired by second mortgagee Q: Describe the right of a second mortgagee?

1. 2. 3.

The mortgagor is a juridical person The mortgagor is a bank, quasi-bank or trust entity The mode of foreclose is extrajudicial

NOTE: The one year redemption period rule still applies if the mortgagor is a natural person and/or the mortgagee is not a bank, quasi-bank or trust entity and/or the mode of foreclose is judicial (but in the latter case, only if the mortgagee is a bank or a credit institution because if the mortgagee is different, there is no right of redemption in judicial foreclosure but only equity of redemption).

A: A second mortgagee acquires only the equity redemption vested in the mortgagor, and his rights are strictly subordinate to the superior lien of the first mortgagee. Taking physical possession not necessary for levy Q: Is taking of possession necessary for levy? A: To levy upon the mortgagor’s equity of redemption, it is not necessary for the sheriff to take physical possession of the mortgaged property.

Kinds of redemption RIGHT OF REDEMPTION Q: What are the kinds of redemption? Q: What is the period to exercise the right of redemption? A: Equity redemption –right of mortgagor in case of judicial foreclosure to redeem the mortgaged property after his default in the performance of the conditions of the mortgage but before the confirmation of the sale of the mortgaged property. 2. Right of redemption –the right of the mortgagor in case of extra-judicial foreclosure to redeem the mortgaged property within a certain period from and after it was sold for the satisfaction of the mortgaged debt. 1.

A: The mortgagor may redeem the property at any time within the term of 1 year from and after the date of the sale, i.e., the date of registration of the certificate of sale with the appropriate Registry of Deeds. Q: Does the filing of an action by redemption to enforce his right to redeem suspend the running period of the statutory period to redeem the property? A: No. It doesn’t also bar the purchaser at public auction fro m procuring a writ of possession after the period had lapsed, without prejudice to the final outcome of the action to 76 UNIVERSITY OF SANTO TOMAS


enforce the right of redemption. It also doesn’t suspend the period to institute an action to annul the foreclosure sale.

1.

GENERAL BANKING LAW OF 2000

2.

The General Banking Law of 2000 (R.A. 8791) now provides that juridical mortgagors like partnerships and corporations are barred from the right of redemption of mortgaged property sold pursuant to an extrajudicial foreclosure, after the registration of the certificate of foreclosure with the applicable Register of Deeds. This amendment is open to constitutional objection of being violative of equal protection guarantee for it discriminates against corporate or juridical mortgagors and the prohibition against the impairment of the obligation of contracts. Also, R.A. 8791 now limits the redemption period to only 3 months, to begin from the date of the foreclosure sale but not after the registration of the certificate of foreclosure sale which ever comes first.

Q: What is the effect of failure to exercise right? A: The title to the property sold under a mortgagee foreclosure remains with the mortgagor or his grantee until the expiration of redemption period. The right of purchaser at the foreclosure sale is merely inchoate until after the period of redemption has expired without the right being exercised. If no redemption is made within the prescribed period, the purchaser becomes the absolute owner of the property. He has the absolute right to a writ of possession which is the final process to carry out or consummate the extrajudicial foreclosure. Henceforth, the mortgagor losses his right over the property.

Q: Is this provision regarding the one -year period to exercise the right of redemption mandatory? A: It is only directory and can be extended by agreement of the parties. Q: What are the 2 requisites for this agreement of the parties?

3.

4.

redemption eliminates from his title the lien created by the levy or attachment or judgment or registration of the mortgage thereon. Redemption defeats the inchoate right of purchaser and restores the property to the same condition as if no sale had been made It does not give the mortgagor a new title, but merely restores to him the title freed of the encumbrance of the lien foreclosed . The exercise of the right of redemption is an implied admission of the regularity of the foreclosure sale and steps the mortgagor from later impugning its validity on that ground

NOTE: What is actually effected where redemption is exercised is not the recovery of the property since ownership is never lost. Redemption is inconsistent with the claim of invalidity of the sale. rd

Q: What if the mortgaged property is sold to a 3 party? rd

A: A sale by the mortgagor to a 3 party of the mortgaged property during the period for redemption transfers only the right to redeem the property and the right to possess, use and enjoy the same during the period. NOTE: Under Rule 39, the judgment debtor remains in possession of the property foreclosed and sold, during the period of redemption, but he cannot make a conveyance of the ownership of the property as said ownership belongs to the purchaser at the foreclosure sale. Q: What if the sale is not registered and made without consent of the mortgagee? A: The buyer was not validly substituted as debtor, and hence, had no right to redeem. Q: What is the effect of an extra-judicial foreclosure effected with fraud? A: Such is null and void ab initio . The consolidation of ownership of the subject property to the mortgagee as the rd highest bidder and its subsequent resale to a 3 party are also without force or effect. The mortgagor is entitled to the equitable remedy of redemption.

A: 1. 2.

voluntary agreement of the parties to extend the redemption period debtor’s commitment to pay red emption price on a fixed date.

CONFIRMATION BY COURT OF AUCTION SALE IN JUDICIAL FORECLOSURE Q: What is the procedure for the equity of redemption right of the mortgagor?

Q: What is the effect of the exercise of the right? A: A: 1.

Pay the secured debt within the 120-day period from the entry of judgment in accordance with Sec. 77 UNIVERSITY OF SANTO TOMAS


2.

2, Rule 68 or even after the foreclosure sale but prior to its confirmation In case of compromise agreement, parties may agree on the amounts to be paid, when they should be paid, and the effects of non-payment or violation of the terms of their agreement

The formal offer to redeem is not a distinct step or condition sine qua non to the filing of an action in court for the valid exercise of the right of legal redemption.

Q: What then constitutes a condition precedent?

Q: What is the nature of judicial foreclosure or real estate mortgage?

A: Either a formal offer to redeem or the filing of an action in court together with the consignation of the redemption price within the reglementary period.

A: The general rule is that the mortgagor cannot exercise his right of redemption after the sale is confirmed.

2. A mere statutory privilege – it must be exercised in the mode and within the period prescribed by the statute.

Q: What is the importance of confirmation of the sale of the mortgaged real property?

The filing of an action to enforce redemption within the period is equivalent to a formal offer to redeem and should the court allow the redemption, the redemptioner should then pay the amount already determined.

A: It cuts off all the rights or interests of the mortgagor and of the mortgagee and persons holding under him, and with them the equity of redemption in the property and vests them in the purchaser. Confirmation retroacts to the date of the sale. It is a final order not merely interlocutory. CONTROL OF COURT OVER PROCEEDINGS BEFORE CONFIRMATION Q: Who controls the proceedings over the proceedings before the confirmation? A: The court retains control of the proceedings by exercising sound discretion in regard to it either granting or withholding confirmation as the rights and interests of the parties and ends of justice may require. rd

NOTE: The subsequent sale by purchaser to a 3 person of the mortgaged property does not prevent the court from granting the mortgagor a period within which to redeem the property by paying the judgment debt and the expenses of sale and costs. Q: Without the confirmation by the court, what is the effect of acceptance of bid at the foreclosure sale? A: It does not confer title on the purchaser who is nothing more than a preferred bidder.

The right on redemption is liberally construed in favor of the original owner of the property. By executing a dacion en pago by the mortgagor in favor of the mortgagee, the former waived the redemption period normally given a mortgagor.

3.

Involves title to foreclosed property Redemption period NOT interrupted by the filing of an action for nullity of sale

Q: Is the redemption period interrupted by the filing of an action for nullity of sale? A: No. Q: What will toll the running? A: What will toll the running of the period is the action to compute the redemption price. Q: Who may redeem? A: 1. 2. 3. 4.

Q: What is the nature of the mortrgagor’s righ t of redemption?

The mortgagor His successors Assign Junior encumbrancer

A: Amount of redemption price Nature of the mortgagor’s right of redemption

Q: What is the amount of the redemption price? 1.

An absolute privilege – the exercise of which is entirely dependent upon the will and discretion of redemptioner. Thus, there is no legal obligation to exercise the right

A: 1.

If the mortgagee is a bank, quasi-bank, or trust entity, the bid price is the: a. outstanding obligation 78 UNIVERSITY OF SANTO TOMAS


b.

2.

3.

plus interest stipulated in the mortgage agreement c. plus cost and expenses incurred during the foreclosure less any income derived from the property, If the mortgagor is an accomodation mortgagor, the redemption price is the amount of the bid price plus 12% interest per annum If the mortgagee is not a bank, quasi-bank or trust entity, the redemption price is the amount of the bid price plus 12% per annum.

2. 3.

His successors in interest Assigns

Q: Can the writ of possession be enforced against 3 persons?

rd

A: No, it cannot be enforced against third persons whose title is adverse to the mortgagor, in which case, an action to recover possession is the appropriate remedy. Remedy of mortgagee to obtain possession

Q: What is the redemption price in case of accomodation mortgagors?

Q: What is the remedy in case the mortgagee cannot obtain possession?

A: Accommodation mortgagors are not liable for the payment of the loan of the debtor. The liability of the accommodation mortgagors extends only up to the loan value of their mortgaged property and not to the entire loan itself. Hence, it is only just that they be allowed to redeem their mortgaged property by paying only the winning bid price thereof (plus interest thereon) at the public auction sale.

A: If a mortgagee cannot obtain possession of the mortgaged property for its sale on foreclosure, he must bring a civil action either to: a. To recover such possession as a preliminary step to the sale or b. To obtain judicial foreclosure. REPLEVIN

Effect of the pendency of action for annulment of sale Q: What is replevin? Q: Is the filing of an action to nullify the extrajudicial sale a prejudicial question to the petition filed by the mortgagee for the issuance of the writ of possession? A: No, a complaint for annulment of extrajudicial sale is a civil action and a petition for the issuance of writ of possession is but an incident to the land registration proceeding hence no prejudicial question can arise from the two actions. Q: What is the effect of the pendency of action for annulment of sale?

A: It is the appropriate action to recover possession preliminary to the extra-judicial foreclosure of a chattel mortgage. Q: Who can institute replevin suit? A: It is not only the owner but also a person “entitled to the possession” of the property can institute a replevin suit. Q: When does a mortgagee become a transferee?

A: If the foreclosure is irregular, the mortgagor may file an action to nullify the sale. Such action however, does not suspend the running of the redemption period or the issuance of the writ of possession if such writ is prayed for after expiration of the redemption period.

A: He becomes a transferee only after acquiring the property in the foreclosure sale and subsequently consolidates his title to it.

Writ of possession

ACT 3135

Q: Is the issuance of the writ of possession ministerial or discretionary?

Q: What are the stages in extra-judicial foreclosure? A:

A: The issuance of the writ of possession after the expiration of redemption period and consolidation of title is the ministerial duty of the court. It can be granted ex parte and not subject to a bond requirement. Q: To whom can the writ of possession be enforced? A: Only against: 1. The mortgagor

1. 2.

Execution of contract of loan and REM agreement with the corresponding SPA; Default of the mortgagor-debtor either by: a. b.

Non-payment; or Violation of the terms of the loan or REM agreement.



3.

Filing of petition for sale with Clerk of Court who acts as ex-officio sheriff. Then, the clerk of court will raffle it among the sheriffs who will conduct the foreclosure sale once given the authority to do so;

What the law requires is the posting of the notice of sale and not the certificate of posting. 5.

Q: Where should the petition be filed? Is it subject to the rules on venue? 6.

A: It is not subject to the rules on venue. The petition is filed where the property is located. Q: What if the mortgaged properties are located in different places or provinces? A: In case the mortgaged properties are located in different provinces, the venue of the extrajudicial foreclosure proceedings is the place where each of the mortgaged property is located. Q: Will the above rule violate the principle of indivisibility of the mortgagee?

Foreclosure- the remedy available to the mortgagee by which he subjects the mortgaged property to the satisfaction of the obligation to secure which the mortgage was given Registration of sale with the Register of Deeds

NOTE: This pertains to the annotation of the sale to the Transfer Certificate of Title on file with the Register of Deeds 7.

8.

Redemption – the mortgagor reacquires or buys back the property, which may have passed under the mortgage Consolidation of title

Q: How is the title consolidated? A: By filing an affidavit with the Register of Deeds. Q: What must the affidavit of consolidation of title indicate?

A: No. The principle of indivisibility of the mortgagee states that all the mortgaged properties will answer for the mortgage debt and the partial payment of the debt does not extinguish that part paid corresponding to the mortgaged properties. NOTE: There is no more indivisibility of mortgage after the foreclosure. The mortgagor can redeem on a piece-meal basis.

A: It must indicate the relevant dates to show mortgagor’s failure to redeem within the allowable time. This enables the mortgagee to acquire full ownership over the property. His inchoate right ripens to full ownership. 9.

Cancellation of title of the mortgagor and issuance of a new title in favor of the mortgagee

Q: What is the basis of this? Q: What is the prescriptive period of a mortgage action? A: The basis of which is the order of court confirming the sale. A: It prescribes in 10 years from the time the right of action accrues.

10. Petition for writ of possession

Q: When does the right of action accrue?

Q: Is there a need to file an ejectment suit?

A: It accrues from the time the mortgagor defaults in the payment of his obligation to the mortgagor defaults in the payment of his obligation to the mortgagee and not from the time of the execution of the mortgage contract;

A: No. That would be very costly and although a summay proceeding, ejectment cases take long period of time.

4.

Compliance with certain jurisdictional requirements: a.

b.

Publication- in a newspaper of general circulation once a week for 3 consecutive weeks; and Posting- of the notice of sale for not less than 20 days in at least 3 public/conspicuous places in the province or municipality where the property is located.

Q: What is writ of possession? A: Here, the mortgagee employs force to oust the mortgagor from the property. Q: Can this writ of possession be issued during the redemption period? A: This writ may be even issued during the redemption period. Q: Is a bond required?

NOTE: A certificate of posting is not indispensable for the validity of an extra-judicial foreclosure sale of real property.



A: Yes, This writ may be even issued during the redemption period provided the mortgagee is issued a bond but the grant of which is discretionary on the part of the court. Q: What if petition for the writ is filed a fter the expiration of the redemption period? A: The issuance of which is ministerial on the part of the court. This writ can be issued without the issuance of a bond; in fact, it can even be issued ex parte.

2. 3.

The sale was not finished and is continued the followi8ng day until completed When there is waiver

Q: What is the effect of clerical errors? A: Clerical errors in the name of the mortgagor and the technical description in the notice of sale are not sufficient to annul a foreclosure. Q: Can the notices required by law be waived?

Q: Is the writ suspended by the mere filing of the mortgagor of an action to annul the foreclosure sale?

A: No. Notices are given to secure bidders and prevent sacrifice of property.

A: No. Two-bidder rule not applicable Publication requirement Q: Is there a need for personal notice? A: No. The publication takes the place of the notice. XPN: 1. 2.

When the mortgagee assumes the obligation to notify the mortgagor unless so stipulated.

Q: What is meant by “once a week for 3 consecutive weeks”?

A: A period of 7 days, inclusive of the first day of publication. The publication must be made 7 days apart.

NOTE: The case of PS Bank v. Certeza scrapped the 2-bidder rule. Neither Act No. 3135 nor the previous circulars issued by the Court governing extrajudicial foreclosures provide for a similar requirement. The two-bidder rule is provided under P.D. No. 1594 and its implementing rules with respect to contracts for government infrastructure projects because of the public interest involved. Although there is a public interest in the regularity of extrajudicial foreclosure of mortgages, the private interest is predominant. The reason, therefore, for the requirement that there must be at least two bidders is not as exigent as in the case of contracts for government infrastructure projects. It is no longer required to have at least two bidders in an extrajudicial foreclosure of mortgage Q: Does the two-bidder rule apply in case of foreclosure of a real estate mortgage?

Q: What happens when the foreclosure sale is postponed? A: No. A: The notice of sale must be republished once a week for 3 consecutive weeks, otherwise, foreclosure is invalid.

Foreclosure sale

Q: What is the effect of loss of the “affidavit of publisher”?

Q: How is the foreclosure sale conducted?

A: The presumption of regularity in the performance of duty is not applicable. The affidavit must be produced, otherwise, there is no such publication, hence, no valid public sale.

A: The highest bidder wins. a.

Republication b.

Q: What is the rule in case of republication?

if the mortgagee wins, there is no need to pay cash to the mortgagor, and thus, the bid price would simply be applied to the amount of obligation if the highest bidder is not the mortgagee, then the purchaser needs to pay cash and remit his payment to the mortgagee.

A: Failure to implead subordinate lien holders GR: Republication is absolute Q: What is the effect of failure to implead subordinate lien holders to the mortgage as defendants in foreclosure proceedings? Would that render the proceedings not valid?

XPNs: 1.

The publication also states an alternative date and the sale pushed through on that date 81 UNIVERSITY OF SANTO TOMAS


A: No. The only effect of failure on the part of the mortgagee to make the subordinate lien holder a defendant is that the decree of foreclosure in a suit to which the holders of a second lien are not parties leaves equity of redemption in favor of such lien holders unf oreclosed and unaffected.

A: a.

With respect to the real estate mortgage over the land and building owned by Primetime Corp ., a juridical body, the period of redemption is only 3 months b. With respect to the real estate mortgage over the house and lot owned by Mr. Timbol, the period of redemption is 1 year from the date of registration of the certificate of sale.

Right of redemption Q: When must the buyer exercise the right of redemption? A: 1 year from the date of registration of the certificate of sale.

Q: What if the mortgagor is an estate? Q: What is the effect of the exercise of the right of redemption? A: The exercise of the right of redemption is an implied admission of the regularity of the foreclosure sale and estops the mortgagor from later impugning its validity on that ground. Redemption is inconsistent with the claim of the invalidity of the sale. Q: When does the 1 year period for redemption not apply? A: It does not apply to real estate mortgages constituted by juridical persons in favor of: a. b. c.

A: The issue is not yet settled. Probably 3 months, since it is already a judicial person since the mortgagor in such case has already died. Right of redemption vs. repurchase Q: Differentiate the Right of redemption and repurchase. A: RIGHT OF REDEMPTION Becomes functus officio on the date of expiry and

bank quasi-bank trust entity

Q: The period of redemption can only be exercised until but not after the registration of the certificate of sale or 3 months from foreclosure, whichever is earlier, under what conditions?

By force of law; the purchaser at public auction is bound to accept the redemption

REPURCHASE The exercise of the right of redemption after the period is not really one of redemption but repurchase No such obligation; the law will not compel the purchaser to resell

Redemption Price A: 1. 2.

3.

mortgagor must be a juridical person that is either a partnership or a corporation morgtagee is: a. bank b. quasi-bank c. trust entity foreclosure is done extra-judicially

Q: Primetime Corp. obtained a P10 M, 5-year loan from the Universal Bank. As security for the loan the following securities were agreed: a. a real estate mortgage over the land and building owned by Primetime Corp b. joint and several promissory note of Mr. Primo Timbol, the President of Primetime Corp. c. a real estate mortgage over the residential house and lot owned by Mr. Timbol. The Primetime Corp. was not able to pay the obligation. Thus, the real estate was foreclosed.

Q: What is the rule as to the redemption price in case the mortgagee is a banking institution? A: The redemption price is the amount fixed by the court in the order of execution or the amount due under the mortgaged deed. Q: How about in case of accommodation mortgagors? A: Accomodation mortgagors are not liable for the payment of the loan of the debtor. The liability of the accommodation extends only up to the loan value of their mortgaged property and not to the entire loan itself. Hence, its only just that they be allowed to redeem their mortgaged property by paying only the winning bid price thereof (plus interest thereon) at the public auction. Q: What is the effect of filing an action to annul the foreclosure sale during the one year redemption period?



A: It will not toll the running of the 1 year redemption period. A: No, to rule otherwise would defeat the purpose of the la w. NOTE: A judicial action instituted for the sole purpose of determining the amount of the redemption price, if before the expiration of the original period to redeem, has the effect of a valid exercise of the right of the right to redeem and will suspend the running of the period of redemption even if unaccompanied by a simultaneous tender of the redemption price. Summary

Banks Quasi-banks Trust entity Non-banks

Q: What is the remedy if the mortgagor failed to redeem but refuses to surrender the certificate of title? A: The court may order the Register of Deeds to register the final deed of sale because otherwise the buyer will never be able to consolidate his title. Q: What if the property is in the possession of the lessee whose lease has not terminated?

AMOUNT Outstanding obligation + Interest stipulated under the agreement Bid price + Interest of 12% per annum

A: The mortgagee is entitled to the issuance of writ of possession even if the property is in the possession of a lessee whose lease has not expired XPNS: a. b.

NOTE: In this case, there is encouragement for a higher bid to make the redemption more difficult

The lease had been previously registered in the Registry of Property Despite the non-registration, the mortgagee had prior knowledge of the existence and the duration of the lease (actual knowledge being equivalent to registration) rd

Remedies of 3 parties Mortgagee is a bank but mortgagor is an accommodation mortgagor

Value of the loan

Q: Are the bidder obliged to bid based on the FMV?

rd

Q: What are the remedies available in favor of 3 parties adversely affected by the order for the issuance of the writ of possession in favor of the winning bidder? A: 1.

A: No. XPN: Grossly inadequate/shocking to the conscience

2.

Q: What if the right of redemption is exercised beyond the 1 year period, what will be the interest rate? A: The interest rate is the stipulated interest rate for the one year period but beyond such 1 year period, an interest rate of 12% per annum shall be imposed.

Terceria to determine whether the sheriffs has rightfully or wrongfully taken hold of the property not belonging to the judgment debtor or obligor An independent separate action to vindicate their claim of ownership and/or possession over the foreclosed property.

Q: What is the effect of filing a collection case?

Owner of the mortgaged property

A: It is tantamount to abandonment of the remedy to foreclose the REM. The principle applies even though the rd mortgage was constituted on the property of a 3 party mortgagor and collection suit was filed before foreign courts.

Q: Who is the owner of the mortgaged property?

JUDICIAL FORECLOSURE

A: During the redemption period, the mortgagor is still the owner. Hence, he may still execute attributes of ownership during the period such as executing a second mortgage on the same subject property. Q: The mortgagee introduced improvements on the property sought to be redeemed. Will the cost of the improvements be imputed to the redemption price?

Q: What are the stages in judicial foreclose? A: 1.

File a complaint against the mortgagor –together with the subsequent lien holders, otherwise equity of redemption will not be divested 83 UNIVERSITY OF SANTO TOMAS


2. 3. 4. 5.

6. 7. 8.

Hearing Judgment Entry judgment- this is the reckoning point whereby the period of equity of redemption is computed 90-120 days from the entry of judgment for the mortgagor to pay his debt, as determined by the court Upon failure to pay, the mortgagee must file a Motion for Execution foreclosing the mortgage Execution sale Mortgagee to file Motion for Confirmation of Sale

Q: What is the purpose of the Motion for Confirmation of Sale? A: Its purpose is to declare the sale valid in accordance with the law. 9.

Issuance of the order confirming the sale

Q: Is this order confirming the sale appealable? A: Yes because it is not an interlocutory order. Thus, the mortgagee must wait until the finality of the order 10. Cancellation of the title of the mortgagor and issuance of new title to the mortgagee

Q: What is the basis of this? A: The order of the court confirming the sale 11. Motion for writ of possession from the same court that ordered the foreclosure

Q: When can you exercise the right of redemption in judicial foreclosure? A: GR: There is no right of redemption in judicial foreclosure, only equity of redemption XPN: If the mortgagee or bidder is a: a. b.

Bank Credit institution, the mortgagor has 1 year from the registration of order confirming the sale and the certificate of sale to redeem the property

EQUITY OF REDEMPTION Q: What is equity of redemption?

days from entry of judgment and even beyond, until finality of order confirming the sale.

EQUITY OF REDEMPTION GR: Only in Judicial foreclosure XPN: In case of extra judicial foreclosure involving a bank as mortgagee and a juridical person as mortgagor

RIGHT OF REDEMPTION GR: There is no right of redemption in juridical foreclosure, only equity in redemption XPN: If the mortgagee or bidder is: a. Bank c. Credit institution, the mortgagor has 1 year from the registration of order confirming the sale and the certificate of sale to redeem the property

To whom conferred May be acquired by a To the second mortgagee in a. mortgagor, case of sale of property b. successors-ininterest c. or any judgment creditor of the mortgagor Period In judicial foreclosure: GR: Extra-judicial 90-120 days from entry foreclosure under Act of judgment or until 3135-1 year from the finality of order date of registration of confirming sale certificate of sale XPN: in banks, 3 months from the date of actual sale or registration whichever is earlier When exercised After the entry of Only after foreclosure judgment but before sale foreclosure sale; After foreclosure sale but before confirmation sale

A: The right of the mortgagor not to be divested of the ownership of the mortgaged property and to stop the foreclosure sale by paying the mortgage debt within 90-120 84 UNIVERSITY OF SANTO TOMAS


ACT 3135 v. RULE 68 of Rules of Court

2

ACT 3135 2

RULE 68 FORECLOSURE OF REAL ESTATE MORTGAGE Section 1. Complaint in action for foreclosure. In an action for the foreclosure of a mortgage or other encumbrance upon real estate, the complaint shall set forth the date and due execution of the mortgage; its assignments, if any; the names and residences of the mortgagor and the mortgagee; a description of the mortgaged property; a statement of the date of the note or other documentary evidence of the obligation secured by the mortgage, the amount claimed to be unpaid thereon; and the names and residences of all persons having or claiming an interest in the property subordinate in right to that of the holder of the mortgage, all of whom shall be made defendants in the action.

Sec. 2. Judgment on foreclosure for payment or sale. If upon the trial in such action the court shall find the facts set forth in the complaint to be true, it shall ascertain the amount due to the plaintiff upon the mortgage debt or obligation, including interest and other charges as approved by the court, and costs, and shall render judgment for the sum so found due and order that the same be paid to the court or to the judgment obligee within a period of not less than ninety (90) days nor more than one hundred twenty (120) days from the entry of judgment, and that in default of such payment the property shall be sold at public auction to satisfy the judgment. Sec. 3. Sale of mortgaged property; effect. When the defendant, after being directed to do so as provided in the next preceding section, fails to pay the amount of the judgment within the period specified therein, the court, upon motion, shall order the property to be sold in the manner and under the provisions of Rule 39 and other regulations governing sales of real estate under execution. Such sale shall not affect the rights of persons holding prior encumbrances upon the property or a part thereof, and when confirmed by an order of the court, also upon motion, it shall operate to divest the rights in the property of all the parties to the action and to vest their rights in the purchaser, subject to such rights of redemption as may be allowed by law. Upon the finality of the order of confirmation or upon the expiration of the period of redemption when allowed by law, the purchaser at the auction sale or last redemptioner, if any, shall be entitled to the possession of the property unless a third party is actually holding the same adversely to the judgment obligor. The said purchaser or last redemptioner may secure a writ of possession, upon motion, from the court which ordered the foreclosure.

There should be a special power of attorney If not registered, the only remedy is the judicial foreclosure Process:

RULE 68 of Rules of Court No special power of attorney is required Can extra-judicially foreclose even if not registered

1.

File a complaint for judicial foreclosure 2. Implead the junior mortgagors, otherwise, the equity of redemption is reserved to them 3. Order confirming the sale

ACTION FOR FORECLOSURE Q: What is the effect of filing of action for foreclosure?

defendant for any such balance for which, by the record of the case, he may be personally liable to the plaintiff, upon which execution may issue immediately if the balance is all due at the time of the rendition of the judgment; otherwise, the plaintiff shall be entitled to execution at such time as the balance remaining becomes due under the terms of the original contract, which time shall be stated in the judgment.

Sec. 7. Registration. Sec. 4. Disposition of proceeds of sale. The amount realized from the foreclosure sale of the mortgaged property shall, after deducting the costs of the sale, be paid to the person foreclosing the mortgage, and when there shall be any balance or residue, after paying off the mortgage debt due, the same shall be paid to junior encumbrancers in the order of their priority, to be ascertained by the court, or if there be no such encumbrancers or there be a balance or residue after payment to them, then to the mortgagor or his duly authorized agent, or to the person entitled to it. Sec. 5. How sale to proceed in case the debt is not all due. If the debt for which the mortgage or encumbrance was held is not all due as provided in the judgment, as soon as a sufficient portion of the property has been sold to pay the total amount and the costs due, the sale shall terminate; and afterwards, as often as more becomes due for principal or interest and other valid charges, the court may, on motion, order more to be sold. But if the property cannot be sold in portions without prejudice to the parties, the whole shall be ordered to be sold in the first instance, and the entire debt and costs shall be paid, if the proceeds of the sale be sufficient therefor, there being a rebate of interest where such rebate is proper. Sec. 6. Deficiency judgment. If upon the sale of any real property as provided in the next preceding section there be a balance due to the plaintiff after applying the proceeds of the sale, the court, upon motion, shall render judgment against the

A certified copy of the final order of the court confirming the sale shall be registered in the registry of deeds. If no right of redemption exists, the certificate of title in the name of the mortgagor shall be cancelled, and a new one issued in the name of the purchaser. Where a right of redemption exists, the certificate of title in the name of the mortgagor shall not be cancelled, but the certificate of sale and the order confirming the sale shall be registered and a brief memorandum thereof made by the registrar of deeds upon the certificate of title. In the event the property is redeemed, the deed of redemption shall be registered with the registry of deeds, and a brief memorandum thereof shall be made by the registrar of deeds on said certificate of title. If the property is not redeemed, the final deed of sale executed by the sheriff in favor of the purchaser at the foreclosure sale shall be registered with the registry of deeds; whereupon the certificate of title in the name of the mortgagor shall be cancelled and a new one issued in the name of the purchaser.

Sec. 8. Applicability of other provisions. The provisions of sections 31, 32 and 34 of Rule 39 shall be applicable to the judicial foreclosure of real estate mortgages under this Rule insofar as the former are not inconsistent with or may serve to supplement the provisions of the latter.


Hizon Notes - Special Commercial Laws

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